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EX-32.2 - CERTIFICATION - YAPPN CORP.f10q0217ex32ii_yappncorp.htm
EX-32.1 - CERTIFICATION - YAPPN CORP.f10q0217ex32i_yappncorp.htm
EX-31.2 - CERTIFICATION - YAPPN CORP.f10q0217ex31ii_yappncorp.htm
EX-31.1 - CERTIFICATION - YAPPN CORP.f10q0217ex31i_yappncorp.htm

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal quarter ended February 28, 2017

 

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _______ to _______

 

YAPPN CORP.

(Exact name of small business issuer as specified in its charter)

 

Delaware   000-55082   27-3848069
(State of Incorporation)   (Commission File Number)   (IRS Employer Identification No.)

 

1001 Avenue of the Americas, 11th Floor

New York, NY 10018

(Address of principal executive offices) (Zip code)

 

888-859-4441

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.0001 par value per share

(Title of Class)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

There were 40,322,314 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of April 13, 2017.

 

Transitional Small Business Disclosure Format Yes ☐   No ☒

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Financial Statements 1
  Interim Condensed Consolidated Balance Sheets as of February 28, 2017 (unaudited) and May 31, 2016 2
  Interim Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended February 28, 2017 and February 29, 2016 (unaudited) 3
  Interim Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended February 28, 2017 (unaudited) and year ended May 31, 2016 4
  Interim Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2017 and February 29, 2016 (unaudited) 5
  Notes to Interim Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 31
     
PART II    
     
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 33
SIGNATURES 35

  

 

 

 

PART I

 

Item 1.

 

Interim Condensed Consolidated Financial Statements and Notes to Interim Condensed Consolidated Financial Statements

 

General

 

The accompanying reviewed interim condensed consolidated financial statements are unaudited and have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company's annual report on Form 10-K for the year ended May 31, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended February 28, 2017 are not necessarily indicative of the results that can be expected for the year ending May 31, 2017.

 

All references to “dollars”, “$” or “US$” are to United States dollars and all references to “CAD$” are to Canadian dollars. United States dollar equivalents of Canadian dollar figures are based on the exchange rate as reported by the Bank of Canada on the applicable date.

 

 1 

 

 

YAPPN CORP.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

   Note  As of
February 28, 2017
   (audited)
As of
May 31,
2016
 
Assets           
Current assets:             
Cash     $138,951   $448,575 
Accounts receivable      3,619    29,244 
Note receivable  3   -    1,123,289 
Prepaid expenses      92,427    113,262 
Total current assets      234,997    1,714,370 
              
Equipment, net      11,248    14,632 
Intangible assets  4   3,902,687    4,676,221 
Total Assets     $4,148,932   $6,405,223 
              
Liabilities and Stockholders' Deficit             
Current liabilities:             
Accounts payable     $401,496   $533,030 
Accrued expenses      210,635    430,754 
Short term accrued interest      155,437    409,280 
Accrued development and related expenses - related party  12   -    16,654 
Short term loans  5   89,462    284,451 
Convertible promissory notes and debentures  7   355,000    2,454,824 
Total current liabilities      1,212,030    4,128,993 
              
Other liabilities:             
Long term accrued interest      1,200,406    577,231 
Long term loans  8   1,326,348    - 
Long term secured debentures  6   4,550,388    4,550,388 
Convertible secured debentures  8   504,214    375,279 
Total Liabilities      8,793,386    9,631,891 
              
Stockholders' Deficit             
Preferred stock, par value $.0001 per share, 50,000,000 shares authorized: Series 'A' Convertible, 10,000,000 shares authorized; nil shares issued and outstanding  10   -    - 
Common stock, par value $.0001 per share, 400,000,000 shares authorized 40,322,314 issued and outstanding (May 31, 2016 – 30,081,163)  9   16,124    15,100 
Common stock, par value $.0001 per share, 18,988,318 shares subscribed not issued (May 31, 2016 – 20,308,890)  9   2,639,071    3,068,945 
Additional paid-in capital      19,186,011    15,353,712 
Deficit      (26,485,660)   (21,664,425)
Total Stockholders' Deficit      (4,644,454)   (3,226,668)
Total Liabilities And Stockholders' Deficit     $4,148,932   $6,405,223 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 2 

 

 

YAPPN CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

LOSS (Unaudited)

 

      Three Months Ended
February 28/29
   Nine Months Ended
February 28/29
 
   Note  2017   2016   2017   2016 
                    
Revenues  3  $65,130   $101,537   $272,196   $911,918 
                        
Cost of revenue      42,343    9,134    93,760    146,068 
                        
Gross profit      22,787    92,403    178,436    765,850 
                        
Operating expenses:                       
Marketing      3,251    26,152    20,596    224,900 
Research and development expenses  12   183,396    109,203    469,967    301,168 
General and administrative expenses  12   357,671    497,826    1,159,021    1,272,484 
Professional fees      46,724    241,025    155,482    401,048 
Consulting      72,438    92,590    184,747    295,665 
Depreciation      3,341    102    5,773    300 
Amortization  4   265,880    263,940    797,630    483,890 
Stock based compensation  11   335,675    64,772    1,145,338    478,289 
Total operating expenses      1,268,376    1,295,610    3,938,554    3,457,744 
                        
Loss from operations      (1,245,589)   (1,203,207)   (3,760,118)   (2,691,894)
                        
Other expense/(income):                       
Interest expense      272,402    268,222    794,693    616,609 
Financing expense on issuance of convertible notes and common stock      -    -    -    632,250 
Change in fair value of convertible debentures and notes      108,950    289,881    405,137    (550,456)
Prepayment fees on variable conversion rate notes      -    29,350    -    306,140 
Miscellaneous expense/(income)      8,376    (11,077)   12,087    (27,843)
Gain on debt settlement  3   (1,119,089)   -    (1,119,089)   - 
Impairment of note receivable  3   -    -    968,289    - 
Total other expense/(income)      (729,361)   576,376    1,061,117    976,700 
                        
Net loss before taxes      (516,228)   (1,779,583)   (4,821,235)   (3,668,594)
                        
Provision for income taxes      -    -    -    - 
                        
Net loss and comprehensive loss     $(516,228)  $(1,779,583)  $(4,821,235)  $(3,668,594)
                        
Net loss per weighted-average shares of common stock – basic and diluted     $(0.01)  $(0.07)  $(0.13)  $(0.19)
                        
Weighted-average number of shares of common stock issued and outstanding – basic and diluted      40,322,314    26,433,163    37,070,744    19,269,659 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 3 

 

 

YAPPN CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)

For the nine months ended February 28, 2017 and year ended May 31, 2016

 

   Common   Additional         
   Shares Outstanding   Amount   Subscribed Shares   Subscribed Amounts   Paid-in
Capital
   Accumulated Deficit   Total 
                             
Balance – May 31, 2015   13,422,814    13,423    99,344    124,567    7,981,579    (14,762,852)   (6,643,283)
Stock-based compensation   -    -    -    -    1,164,887    -    1,164,887 
Stock issued on exercise of warrants   11,667    12    -    -    (12)   -    - 
Issuance of common stock for purchase technology   12,998,682    1,300    -    -    1,805,308    -    1,806,608 
Stock to be issued for purchase of technology   -    -    18,988,318    2,639,071    -    -    2,639,071 
Issuance of warrants classified as equity   -    -    -    -    1,279,846    -    1,279,846 
Warrants associated with a secured convertible debenture   -    -    -    -    1,700,052    -    1,700,052 
Common stock associated with common stock and warrants financing   3,648,000    365    -    -    568,561    -    568,926 
Warrants associated with common stock and warrant financing   -    -    -    -    343,074    -    343,074 
Stock to be issued on conversion of debt   -    -    1,221,228    305,307    -    -    305,307 
Beneficial conversion feature   -    -    -    -    510,417    -    510,417 
Net loss for the year ended May 31, 2016   -    -    -    -    -    (6,901,573)   (6,901,573)
Balance – May 31, 2016   30,081,163    15,100    20,308,890    3,068,945    15,353,712    (21,664,425)   (3,226,668)
Stock-based compensation   -    -    -    -    1,095,339    -    1,095,339 
Issuance of warrants classified as equity   -    -    -    -    77,966    -    77,966 
Common stock associated with common stock and warrants financing   1,780,000    178    -    -    253,456    -    253,634 
Warrants associated with common stock and warrants financing   -    -    -    -    191,366    -    191,366 
Stock issued on conversion of debt   8,227,822    823    -    -    2,064,007    -    2,064,830 
Stock to be issued for debenture conversion   -    -    (1,221,228)   (305,307)   -    -    (305,307)
Stock to be issued under prior obligation   113,329    11    (99,344)   (124,567)   120,177    -    (4,379)
Stock issued to settle prior obligation   120,000    12    -    -    29,988    -    30,000 
Net loss for the nine months ended February 28, 2017   -    -    -    -    -    (4,821,235)   (4,821,235)
Balance – February 28, 2017   40,322,314    16,124    18,988,318    2,639,071    19,186,011    (26,485,660)   (4,644,454)

    

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 4 

 

 

YAPPN CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the nine months ended February 28/29 
   2017   2016 
Cash Flows From Operating Activities:        
Net and comprehensive loss  $(4,821,235)  $(3,668,594)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation   5,773    300 
Amortization   797,630    483,890 
Stock based compensation   1,145,338    478,289 
Change in fair value of convertible debentures and notes   405,137    (550,456)
Financing expense on issuance of convertible promissory notes, and common stock   -    632,250 
Impairment of note receivable   968,289    - 
Gain on debt settlement   (1,119,089)   - 
Unrealized foreign exchange and vendor settlements   12,373    - 
Changes in operating assets and liabilities:          
Accounts receivable   25,625    12,520 
Note receivable   155,000    - 
Prepaid expenses   20,835    (59,541)
Accounts payable and accrued liabilities   549,085    830,406 
Accrued development and related expenses - related party   (16,654)   (401,979)
Deferred revenue   -    (12,500)
Net Cash Used in Operating Activities   (1,871,893)   (2,255,415)
           
Cash Flows From Investing Activities:          
Expenditures on patents   (24,096)   (15,927)
Capital expenditures   (2,211)   (377)
Net Cash Used in Investing Activities   (26,307)   (16,304)
           
Cash Flows From Financing Activities:          
Proceeds from convertible promissory notes and debentures   -    90,750 
Proceeds from line of credit, net   -    (1,092,025)
Proceeds from secured debentures   -    2,096,653 
Proceeds from secured convertible debentures   -    2,040,000 
Repayments of short term loans   (32,772)   (151,791)
Proceeds from short term loans   -    168,823 
Proceeds from long term loans   1,326,348    - 
Repayment of convertible promissory notes and debentures   -    (883,564)
Proceeds from common stock private placement   295,000    - 
Net Cash Provided by Financing Activities   1,588,576    2,268,846 
           
Net decrease in cash   (309,624)   (2,873)
Cash, beginning of period   448,575    19,496 
Cash, end of period  $138,951   $16,623 
           
Supplemental Disclosure of Cash Flow Information          
           
Non Cash Investing and Financing Activities Information:          
Common stock issued on exercise of warrants  $-   $37,100 
Conversion of short term loan  $100,000   $- 
Conversion of short term loan and line of credit into secured debentures  $-   $419,305 
Common stock issued for acquisition of technology  $-   $1,806,608 
Common stock to be issued for acquisition of technology  $-   $2,639,071 
Common stock issued for prior obligation  $124,567   $- 
Private placement of units in settlement of payables  $50,000   $- 
Common stock issued for conversion of debt  $2,064,830   $- 
Cash paid for interest during the nine month period  $15,000   $67,941 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 5 

 

 

YAPPN CORP.

Notes to Interim Condensed Consolidated Financial Statements

February 28, 2017

(Unaudited)

 

All references to “dollars”, “$” or “US$” are to United States dollars and all references to “Canadian” are to Canadian dollars. United States dollar equivalents of Canadian dollar figures are based on the exchange rate as reported by the Bank of Canada on the applicable date.

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation and Organization

 

Yappn Corp., formerly “Plesk Corp.”, (the “Company”) was incorporated under the laws of the State of Delaware on November 3, 2010. The business plan of the Company is to provide effective unique and proprietary tools and services that create dynamic solutions that enhance a brand’s messaging, media, e-commerce and support platforms. The Company has offices in the United States and Canada. In March 2013, the Company acquired a concept and technology license from Intertainment Media Inc., a Canadian company, in exchange for 7,000,000 shares of common stock of the Company. As a result of this exchange, Intertainment Media Inc. acquired, at that time, a seventy percent (70%) ownership of the Company. On September 15, 2015, the Company closed the acquisition of Ortsbo Inc.’s (a subsidiary of Intertainment Media Inc.) intellectual property. As a result of the acquisition, Intertainment Media Inc.’s ownership was reduced to 37% (currently 28.35%). The accompanying interim condensed consolidated financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.

 

Unaudited Interim Condensed Consolidated Financial Statements

 

The interim condensed consolidated financial statements of the Company as of February 28, 2017, and for the three and nine month periods ended February 28, 2017 and February 29, 2016 respectively, are unaudited. However, in the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments necessary to present fairly the Company’s financial position as of February 28, 2017 and February 29, 2016 respectively, and the results of its operations and its cash flows for the nine month period ended February 28, 2017 and February 29, 2016 respectively. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2017. The accompanying interim condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States. Refer to the Company’s audited consolidated financial statements as of May 31, 2016 filed with the Securities and Exchange Commission, for additional information including significant accounting policies.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 which was amended in August 2015 by Update No 2015-14: Revenue from Contracts with Customers. The standard outlines a five-step model for revenue recognition with the core principle being that a company should recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Companies can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Under the modified approach, financial statements will be prepared for the year of adoption using the new standard but prior periods presented will not be adjusted. Instead, companies will recognize a cumulative catch-up adjustment to the opening balance of retained earnings. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has not yet made a determination as to the method of application (full retrospective or modified retrospective). It is too early to assess whether the impact of the adoption of this new guidance will have a material impact on the Company's results of operations or financial position.

 

On August 27, 2014 the FASB issued a new financial accounting standard on going concern, Update 2014-15, “Presentation of Financial Statements – Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments in this update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard.

 

In November 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivatives feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The Company has determined there is no material impact to the accounting treatment of its hybrid financial instruments based on this new standard.

 

 There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

 6 

 

  

2. Going Concern

 

The accompanying interim condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced negative cash flows from operations since inception and has incurred a deficit of $26,485,660 through February 28, 2017.

 

As of February 28, 2017, the Company had a working capital deficit of $977,033. During the nine months ended February 28, 2017, net cash used in operating activities was $1,871,893. The Company expects to have similar cash needs for the next twelve months. At the present time, the Company does not have sufficient funds to fund operations over the next twelve months.

 

Implementation of the Company business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. The Company has realized limited revenues to cover its operating costs. As such, the Company has incurred an operating loss since inception. This and other factors raise substantial doubt about its ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required, and ultimately to attain profitability. The interim condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management plans to meet its operating cash flow requirements from financing activities until the future operating activities become sufficient to support the business to enable the Company to continue as a going concern. The Company continues to work on generating operating cash flows from the commercialization of its business. Until those cash flows are sufficient the Company will pursue other financing when deemed necessary.

 

The Company is pursuing a number of different financing opportunities in order to execute its business plan. These include, short term debt arrangements, convertible debt arrangements, common share equity financings, either through a private placement or through the public markets. During the nine months ended February 28, 2017, the Company, through a private placement pursuant to Regulation S of the Securities Act of 1933, raised $1,588,576 through various financial instruments, net of repayments.

 

There can be no assurance that the raising of future equity or debt will be successful or that the Company’s anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a materially adverse effect on the Company’s ability to continue as a going concern. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations.

 

3. Concentration of Credit Risk and Note Receivable

 

All of the Company’s revenues are attributed to a small number of customers. Two customers comprised 91% and 55% of the Company’s revenue for the three and nine month periods ended February 28, 2017. Our former largest customer comprises 0% of the revenue recorded for the nine months ended February 28, 2017 and had comprised 89% of the revenue for the nine months ended February 29, 2016. Intelligent Content Enterprises (“ICE”) comprises 0% and 33% of revenue recorded for the three and nine months ended February 28, 2017. Due to the long period without payment, the Company determined the revenue recognition criteria starting at the beginning of the Company’s second quarter of fiscal 2016 for Digital Widget Factory (Belize) (“DWF”) was not met.

 

Effective February 29, 2016, Digital Widget Factory (Belize) (“DWF”) sold the technology platform, partially developed by Yappn, in conjunction with DWF’s principals, to ICE in exchange for common shares of ICE. As part of the transaction, DWF received ownership and rights to 24 million common shares of ICE for a large minority shareholder position of ICE (the “ICE Transaction”). During the fourth quarter of fiscal 2016, the Company executed a promissory note from DWF for the outstanding value of the billings of $2,125,000. The promissory note was secured by DWF’s ICE stock holdings in the amount of 2,250,000 restricted common shares, which at the market value at the time of execution significantly exceeded the value of the promissory note. The note receivable included monthly payments of differing amounts with the final payment scheduled by November 30, 2016. Additionally, the Company received stock options for the purchase of shares of common stock of ICE from DWF which expired on November 30, 2016.

 

The Company has not received any payments from DWF during the second and third quarter of fiscal 2017, and the secured note final payment date was contracted to be fully paid by November 30, 2016. During the second quarter of fiscal 2017, as at November 30, 2016, management recorded a full impairment on the remaining $968,289 recorded in its financial statements. $1,870,000 in principal remained outstanding against the note receivable.

 

In early 2017, a dispute arose between ICE and DWF over the terms in the asset purchase agreement. The parties agreed to unwind the original transaction. DWF regained title to the assets developed by Yappn and DWF in addition to the additional enhancements while under ICE’s control. ICE’s publicly traded stock was cease traded by the regulators (although subsequently resumed trading) and the original security of ICE shares between DWF and ICE securing the DWF note receivable was, at that time, unmarketable.

 

On February 28, 2017, management reached a resolution with DWF stakeholders. Yappn agreed to reduce its stake in the DWF assets to $800,000 which will be in the form of a new investment in DWF with the specific terms to be determined. This reduced position in DWF’s assets is in exchange for DWF stakeholders forgiving all unsecured debentures, secured debenture, term debt, and related interest that were obligations of Yappn. More specifically, the Company settled $305,000 of unsecured convertible debentures and accrued interest of $91,408 with Series A and B common stock purchase warrants repriced to $0.25 and an extension of one year to maturity of both warrants (Note 7), $250,000 of unsecured convertible debentures and accrued interest of $43,613 with Series D warrants repriced to $0.25 and an extension of one year to maturity of the warrants (Note 7), $65,228 of unsecured term loans and related interest of $16,512 (Note 5), and $200,000 of secured convertible debentures and accrued interest of $20,000 issued to a consultant (Note 8). In addition to the above, the Company has negotiated its release from various past consulting obligations. The Series A, B, and D common stock purchase warrants were repriced to $0.25 from $1.00, $2.00, and $2.20 respectively and extended an additional one year to expire in 2020. Subsequent to February 28, 2017 undertakings for the repricing of the warrants were approved formally by the Board of Directors (Note 13).

 7 

 

Due to the uncertainty of ultimate collectability, the Company will not record any value for the $800,000 investment in DWF until cash collection is reasonably assured, or a liquid market with quoted market prices exist to allow realization from a sale of the investment.

 

4. Intangible Assets

 

On September 15, 2015, the Company finalized its purchase of intellectual property assets of Ortsbo, Inc. (“Ortsbo”) pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn to Ortsbo or its designees. During the second quarter of fiscal 2016, from the share issuance obligations from the purchase of the Ortsbo intellectual property assets, 12,998,682 shares were issued comprising 8,312,500 to Ortsbo and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608 leaving 18,988,318 shares to be issued which remain outstanding as at February 28, 2017 and are reserved but not issued pending instructions from the recipients. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 6). The fair value for the agreed upon consideration for the acquisition of intellectual property from Ortsbo was $16,968,888, however, due to the common control of Ortsbo and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo. This value was $5,421,067 on September 15, 2015.

 

Intangible Assets  Technology   Pending Patents   Issued
Patents
   Total 
Balance on Acquisition - September 15, 2015  $5,278,773   $142,294   $-   $5,421,067 
Additions   -    21,522    -    21,522 
Amortization   (747,830)   -    -    (747,830)
Disposal   -    (18,538)   -    (18,538)
Balance, May 31, 2016  $4,530,943   $145,278   $-   $4,676,221 
Additions   -    24,096    -    24,096 
Reclassification   -    (43,253)   43,253    - 
Amortization   (791,820)   -    (5,810)   (797,630)
Balance, February 28, 2017  $3,739,123   $126,121   $37,443   $3,902,687 

 

5. Short Term Loans

 

The Company has a past due term loan originated on April 1, 2014 with an interest rate of 1% per month. The Company repaid $15,483 (Canadian $20,000) during the first quarter of fiscal 2017. As at February 28, 2017, the loan had a value of $89,462 ($118,815 Canadian).

 

The Company had a past due term loan originated on January 7, 2014 with an interest rate of 1% per month. The Company repaid $13,899 (Canadian $18,125) during the first quarter of fiscal 2017. During the third quarter, the balance of the loan was settled with the debt holder as part of the DWF settlement (Note 3), leaving a value of $nil as at February 28, 2017.

    

During the fourth quarter of fiscal 2016, the Company received $100,000 from a director as an intended subscription in anticipation of a third closing of a private placement of units consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. The Company completed this closing on August 31, 2016 and the loan was applied against the private placement (Note 9).

 

The following is a summary of Short Term Loans:

 

Principal amounts  April 1,
2014
Term Loan
   January 7,
2014
Term Loan
   Other Loans   Total 
Fair value at May 31, 2015  $152,545   $82,817   $556,566   $791,928 
Borrowing during the first quarter   -    -    328,265    328,265 
Borrowing during the second quarter   -    -    1,201,000    1,201,000 
Borrowing during the third quarter   -    -    170,468    170,468 
Borrowing during the fourth quarter   -    -    100,000    100,000 
Fair value adjustments   (9,446)   (4,251)   (19,726)   (33,423)
Conversions   -    -    (1,832,768)   (1,832,768)
Repayments   (37,214)   -    (403,805)   (441,019)
Fair value at May 31, 2016  $105,885   $78,566   $100,000   $284,451 
Fair value adjustments   (940)   (760)   -    (1,700)
Conversions   -    -    (100,000)   (100,000)
Repayments   (15,483)   (13,899)   -    (29,382)
Settlement   -    (63,907)   -    (63,907)
Fair value at February 28, 2017  $89,462   $-   $-   $89,462 

 

 8 

 

 

6. Non-Convertible Secured Debentures

 

Yappn closed the first tranche of secured debentures (secured by general security of the Company’s assets) in the amount of $4,550,388. The secured debentures carry an annual interest rate of 12% payable at maturity. Maturity was initially the earlier of the date proceeds are available from a public offering or December 31, 2015. During the third quarter of fiscal 2016, the holders of the Secured Debentures (the “Holders”) agreed to extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020, and were provided with the right to amend the Secured Debenture such that a Holder shall have the right to require the Company to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of secured debentures consent to a put of their Secured Debentures to the Company. The secured debentures balance as at February 28, 2017, was $4,550,388 (Note 12). Interest expense for the three and nine month period ended February 28, 2017 was $136,512 and $409,535 respectively ($136,512 and $330,695 for the three and nine months ended February 29, 2016).

 

7. Unsecured Convertible Promissory Notes and Debentures

 

The following is a summary of the unsecured convertible promissory notes and debentures as of February 28, 2017:

 

Principal amounts:  Convertible Promissory Notes and
Debentures
   Conversions   Settlement   Total Outstanding Principal 
Total Borrowings                
Borrowing on January 29, 2014  $395,000   $(260,000)   -   $135,000 
Borrowing on February 27, 2014   305,000    -    (305,000)   - 
Borrowing on April 1, 2014   469,000    (299,000)   -    170,000 
Borrowing on April 23, 2014   50,000    (50,000)   -    - 
Borrowing on May 31, 2014   1,000,000    (1,000,000)   -    - 
Borrowing on June 27, 2014   250,000    -    (250,000)   - 
Borrowing on September 2, 2014   125,000    (125,000)   -    - 
Borrowing on October 6, 2014   50,000    (50,000)   -    - 
Borrowing on October 27, 2014   50,000    -    -    50,000 
Total  $2,694,000   $(1,784,000)  $(555,000)  $355,000 
                     
Balance at May 31, 2015                 $1,945,833 
Fair value adjustment                  768,991 
Conversions                  (260,000)
Balance at May 31, 2016                 $2,454,824 
Fair value adjustment                  (20,824)
Conversions                  (1,524,000)
Settlement                  (555,000)
Balance at February 28, 2017                 $355,000 

 

 9 

 

 

Convertible Debentures with Series A and B Warrants

 

On January 29, 2014, February 27, 2014, and April 1, 2014, the Company issued 395, 305, and 469 Units for $395,000, $305,000, and $469,000 respectively. The Units consist of (i) one unsecured 6% convertible promissory note, $100 par value, convertible into shares of the Company’s common stock; (ii) a common stock purchase warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually “Series A Warrant”) at an exercise price of $1.50; and, (iii) a common stock purchase warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually “Series B Warrant”) at an exercise price of $2.00 (Note 10). The purchase price for each Unit was $1,000 and resulted in a funding total of $1,069,000 in cash and the retirement of $100,000 debt obligation to a private investor.

 

The notes matured 24 months from the issuance date and have an interest rate of 6% per annum payable in arrears on the earlier of a default date or the maturity date. The notes may be converted at any time after the original issuance date at the election of their holders to convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.00 per share. Any amount of principal or interest which is not paid when due, shall bear interest at the rate of 16% per annum from the date it is due. Both the Series A and Series B warrants have a five year life.

  

The convertible debentures due on January 29, 2016, February 27, 2016, and April 1, 2016 respectively were not repaid or converted into common shares of the Company by the maturity dates. Management previously made offers to the remaining debenture holders with either extension terms or conversion into common shares as the Company does not currently have the ability to repay these debtholders in cash. In fiscal 2016, $260,000 in principal value of debenture holders took the offer for additional investment and repricing of both warrants. During the nine month period ended February 28, 2017, $299,000 in principal value of debenture holders converted to common stock at a rate of $0.25 per share but only the Series A Warrants were repriced (Notes 9 and 10). The holders of $299,000 in principal converted have the right to an additional issuance of shares if the Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. In addition, on September 21, 2016, a debenture holder with a principal value of $100,000 agreed to extend the outstanding debenture to May 31, 2017 with no penalty interest from default date to May 31, 2017 in exchange for both Series A and B Warrants repriced to $0.35. The Company accounted for the extension as a debt modification as opposed to a debt extinguishment. On February 28, 2017, a debenture holder with $305,000 in principal forgave their debenture and accrued interest in exchange for amending terms for Series A and B Warrants to $0.25 from $1.50 and $2.00 each respectively as well as an extension of one year to the terms of the warrants in conjunction with the settlement of DWF (Note 3 and Note 13). Interest expense for the three and nine month period ended February 28, 2017 was $24,348 and $88,601 respectively ($21,009 and $56,175 for the three and nine months ended February 29, 2016).

 

Convertible Debentures with Series C or Series D Warrants

 

During late fiscal 2014, and early fiscal 2015 the Company authorized and issued 1,050 Units for $1,050,000 to private investors, and 475 Units for $475,000 to seven independent accredited investors respectively. The 475 Units were issued in exchange for $300,000 in cash and release of $90,777 (then Canadian $100,000) in the loan originated on January 7, 2014 and $50,000 in settlement of trade payables. The Units consist of (i) one unsecured 6% convertible debenture, $100 par value, convertible into shares of the Company’s common stock at a conversion price of $1.50 per share; and (ii) a common stock purchase warrant entitling the holder thereof to purchase 700,000 shares of common stock (“Series C Warrant”) and 316,666 shares of common stock (“Series D Warrant”) at a purchase price of $2.20 per share that expires in 5 years (Note 10).

 

The debentures mature 24 months from the issuance date and have an interest rate of 6% (with certain other penalties on overdue interest when debt is past due) per annum payable in arrears on the earlier of a default date or the maturity date. The debentures may be converted at any time after the original issuance date at the election of their holders, who may convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.50 per share. The common stock purchase warrants may be exercised in whole or in part.

 

During the nine month period ended February 28, 2017, $1,225,000 in principal value of debenture holders converted their outstanding debentures and accrued interest into common stock of the Company as well as received amendments to their warrants price of $0.25 (Notes 9 and 10). The holders of the $1,225,000 in principal converted have the right to an additional issuance of shares if the Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. All remaining term and conditions are unchanged. On February 28, 2017, two debenture holders with $250,000 in principal forgave their debentures and accrued interest in exchange for amending terms for Series D warrants to $0.25 from $2.20 as well as an extension of one year to the terms of the warrants in conjunction with settlement of DWF (Note 3). Interest expense for the three and nine month period ended February 28, 2017 was $6,237 and $41,104 respectively ($22,812 and $68,688 for the three and nine months ended February 29, 2016).

 

8. Convertible Secured Debentures and Long-term Loan

 

On December 30, 2015, the Company completed a secured debenture (secured by general security of the Company’s assets) and warrant financing of $2,040,000 ($1,075,000 from directors of the Company) (Note 12) through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested in one year, 1/3 to be vested in two years and 1/3 to be vested in three years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit. 

 

 10 

 

Values were allocated for this private placement between the debt, equity warrants, and the beneficial conversion feature. The valuation approach involved determining a fair value for the debt and warrants and then using the relative fair value method to allocate value to these components. Based on relative fair values, the present value method was used to determine the fair values of the debt and the binomial tree option pricing model was used to determine the fair value of the warrants. The value of the interest and principal payments of the debentures resulted in a value of $459,020 for the debentures and the binomial model resulted in a value for warrants for $1,580,980. The assumptions used for the binomial model are: Volatility 177%, expected life of five years, risk free interest rate of 1.80%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $459,020. The resulting fair value of the debt is $nil, with $1,580,980 allocated to equity warrants (Note 10) and $459,020 to the beneficial conversion feature, both which are recorded as components of additional paid in capital.

On May 1, 2016, the Company closed a secured debenture and warrant financing through conversion of a short term loan of $170,468 from a director of the Company (secured by general security of the Company’s assets) that was otherwise payable on demand in cash. The offering of units was by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested immediately, 1/3 to be vested in one year and 1/3 to be vested in two years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit.

Values were allocated for this private placement between debt, equity warrants, and the beneficial conversion feature similar to the secured debenture and warrant financing of $2,040,000 closed in the third quarter of fiscal 2016 (see above). The value of the interest and principal payments of the debentures resulted in a value of $51,396 for the debentures and the binomial model resulted in a value for warrants for $119,072. The assumptions used for the binomial model are: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $51,396. The resulting fair value of the debt is $nil, with $119,072 allocated to equity warrants (Note 10) and $51,396 to the beneficial conversion feature, both which are recorded as components of additional paid in capital. 

The difference between the fair value and face value of the debentures is to be accreted up to face value over the term to maturity using the effective interest method. The carrying value of the debenture liability as at February 28, 2017 is $475,926 for the December 30, 2015 closing and $28,288 for the May 1, 2016 closing.

 

The following table summarizes the fair values of the components of the convertible secured debentures, including the debt, warrants, and the beneficial conversion feature.

 

Accounting allocation of initial proceeds:  December 30,
2015
   May 1,
2016
   Total 
Gross proceeds  $2,040,000   $170,468   $2,210,468 
Fair value of the convertible secured debt   -    -    - 
Fair value of equity warrants (Note 10)   (1,580,980)   (119,072)   (1,700,052)
Beneficial conversion feature   (459,020)   (51,396)   (510,416)
Change in fair value (from commitment date)   170,932    4,347    175,279 
Convertible secured debenture at fair value at May 31, 2016  $170,932   $4,347   $175,279 
Change in fair value   304,994    23,941    328,935 
Convertible secured debenture at fair value at February 28, 2017  $475,926   $28,288   $504,214 

 

On May 1, 2016, the Company completed a secured debenture financing with a consultant in settlement of $200,000 in obligations with similar terms as the above private placement with no warrant financing, through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. The $200,000 debenture was accounted for as a single debt instrument. On February 28, 2017, Company reached an agreement with the consultant (as a DWF stakeholder) to settle the outstanding debenture and accrued interest in exchange for Yappn’s revised position in DWF (Note 3).

 

Interest expense for the three and nine month period ended February 28, 2017 was $72,314 and $216,942 respectively ($56,495 and $71,321 for the three and nine months ended February 29, 2016).

 

During the second and third quarter of fiscal 2017, Company received a subscription for $1,326,348 in bridge financing (Note 12). This loan is classified as a long term loan until the closing date, as additional participation is expected although not guaranteed.

 

9. Common Stock

 

On August 31, 2015, the Company issued 11,667 shares of common stock in the form of a cashless exercise common stock purchase warrants with a previous allocation to equity of $37,100 in full settlement of warrants issued to a variable note holder that was extinguished in fiscal 2016.  

 

On September 15, 2015, the Company closed an agreement with Ortsbo to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of $16,968,888, which was paid by the assumption of $975,388 in debt and the issuance of $15,993,500 worth of Yappn restricted common shares (32 Million shares at $0.50 per share), however, due to the common control of Ortsbo and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo. This value was $5,421,067 on September 15, 2015. During the second quarter, 12,998,682 shares were issued at a value of $1,806,609 with obligations incurred to issue the remaining 18,988,318 shares when signed registration forms are all obtained by the Company. As at the filing date, the 18,988,318 shares at a value of $2,639,071 remain reserved but not issued (Note 4) and subject to issuance based on the instructions from the recipients. 

 11 

 

 

On April 18, 2016, the Company issued 1,008,000 shares of common stock for $252,000 cash received against the first tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. These warrants will vest in increments of thirds with the first 1/3 being vested on April 17, 2017, second increment of 1/3 on April 17, 2018, and last 1/3 on April 17, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $157,046 and $94,854 respectively. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.24%, and dividend rate of 0%. 

 

On May 17, 2016, the Company issued 2,640,000 shares of common stock for $660,000 cash received against the second tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). 1,200,000 of the shares from the second tranche for $300,000 were issued to two members of the board of directors (Note 12). These warrants will vest in increments of thirds with the first 1/3 being vested on May 16, 2017, second increment of 1/3 on May 16, 2018, and last 1/3 on May 16, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $411,515 and $248,221 respectively. The assumptions used for valuation were: Volatility 179%, expected life of five years, risk free interest rate of 1.29%, and dividend rate of 0%. 

 

On June 13, 2016, principal and interest totaling $305,307 was converted into 1,221,228 of common shares as part of the conversion of convertible debt as described in Note 7. The common shares to be issued were recorded as an obligation as at May 17, 2016, however the issuance did not occur until June 13, 2016. 

 

On August 31, 2016, the Company issued 1,000,000 shares of common stock for $200,000 cash received and settlement of $50,000 in prior obligations against the third tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). All of the shares from the third tranche were issued to four members of the board of directors (Note 12). These warrants will vest in increments of thirds with the first 1/3 being vested on August 31, 2017, second increment of 1/3 on August 31, 2018, and last 1/3 on August 31, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $141,307 and $108,693 respectively. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.19%, and dividend rate of 0%. 

 

On August 31, 2016, principal and interest totaling $1,489,057 was converted into 5,956,226 of common shares as part of the conversion of convertible debt as described in Note 7. 

 

On September 23, 2016, the Company issued 780,000 shares of common stock for $195,000 cash received against the fourth tranche of a private placement of units, at a purchase price of $0.25 per unit, each unit consisting of one share of common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). 80,000 of the shares from the fourth tranche for $20,000 were issued to a member of the advisory board (Note 12). These common stock purchase warrants will vest in increments of thirds with the first 1/3 being vested on September 23, 2017, second increment of 1/3 on September 23, 2018, and last 1/3 on September 23, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $112,327 and $82,673 respectively. The assumptions used for valuation were: Volatility 200%, expected life of five years, risk free interest rate of 1.16%, and dividend rate of 0%. 

 

On September 23, 2016 principal and interest totaling $262,592 was converted into 1,050,368 of common shares as part of the conversion of convertible debt as described in Note 7. 

 

On September 30, 2016, the Company issued 120,000 shares of common stock as settlement against prior accounts payables with a fair value of $30,000. 

 

On November 15, 2016, the Company issued 88,844 shares of common stock in association with the timing of filing its Registration Statement as part of the contractual rights of certain existing convertible debenture holders. 

 

Registration Statement 

 

On October 3, 2016, the Company filed a Registration Statement on Form S-1 (File No. 333-213947) (the “Registration Statement”) with the Securities and Exchange Commission for up to 14,840,964 shares of our Company’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders that are issued and outstanding upon conversion of promissory notes, related past due accrued interest and penalties and/or warrants currently held by those selling stockholders, specifically (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of common stock purchase warrants. The common stock purchase warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement covering the above noted shares was declared effective under the Securities Act of 1933 on January 24, 2017.

 

 12 

 

 

10. Preferred Stock and Warrants

 

Series A Preferred Stock

 

The Company has an authorized limit of 50,000,000 shares of preferred stock, par value $0.0001 with none issued and outstanding as at February 28, 2017 and May 31, 2016.

   

Warrants

 

The following is a summary of common stock purchase warrants issued, exercised and expired through February 28, 2017:

 

   Shares
Issuable
Under
Warrants
   Equity
Value
   Exercise
Price
   Expiration
Issued on March 28, 2013   401,000    917,087   $1.00      March 28, 2018
Issued on May 31, 2013   370,000    543,530   $0.54      May 31, 2018
Issued on June 7, 2013   165,000    211,365   $0.54      June 7, 2018
Issued on November 15, 2013   12,000    3,744   $1.00      November 15, 2018
Issued Series A warrants on January 29, 2014   135,000    135,989   $1.00      January 29, 2019
Issued Series A warrants on January 29, 2014 - Repriced   260,000    268,770   $0.25      January 29, 2019
Issued Series B warrants on January 29, 2014   135,000    -   $2.00      January 29, 2019
Issued Series B warrants on January 29, 2014 - Repriced   260,000    9,022   $0.25      January 29, 2019
Issued Series A warrants on February 27, 2014   305,000    224,135   $1.00      February 27, 2019
Issued Series B warrants on February 27, 2014   305,000    -   $2.00      February 27, 2019
Issued Series A warrants on April 1, 2014   70,000    147,294   $1.00      April 1, 2019
Issued Series A warrants on April 1, 2014 - Repriced   299,000    97,442   $0.25      April 1, 2019
Issued Series A warrants on April 1, 2014 - Repriced   100,000    2,490   $0.35      April 1, 2019
Issued Series B warrants on April 1, 2014   369,000    -   $2.00      April 1, 2019
Issued Series B warrants on April 1, 2014 - Repriced   100,000    3,140   $0.35      April 1, 2019
Issued to Lender – Line of Credit   800,000    1,495,200   $1.00      April 7, 2019
Issued Series C warrants on April 23, 2014 - Repriced   33,333    10,642   $0.25      April 23, 2019
Issued Series C warrants on May 30, 2014 - Repriced   666,667    214,212   $0.25      May 30, 2019
Issued Series D warrants on June 27, 2014   166,667    -   $2.20      June 27, 2019
Issued Series D warrants on September 2, 2014 - Repriced   83,333    41,593   $0.25      September 2, 2019
Issued Series D warrants on October 6, 2014 - Repriced   33,333    16,607   $0.25      October 6, 2019
Issued Series D warrants on October 27, 2014   33,333    15,667   $2.20      October 27, 2019
Issued warrants – consultants   330,000    165,330   $1.50      May 30, 2019
Issued warrants on February 4, 2015 Typenex Co-Investments, LLC   70,000    -   $1.00      February 4, 2020
Issued warrants – consultant on May 31, 2015   5,000    990   $1.00      May 31, 2017
Issued warrants – consultant on May 31, 2015   15,000    2,970   $1.50      May 31, 2017
Issued warrants to advisory board on September 28, 2015 - Repriced   300,000    233,490   $0.25      August 31, 2020
Issued to Lender – Line of Credit on November 5, 2015   1,700,000    519,520   $1.00      April 7, 2019
Issued warrants to consultant on November 5, 2015   100,000    23,240   $1.00      October 16, 2017
Issued warrants on December 30, 2015   20,400,000    1,580,980   $0.01      December 29, 2020
Issued warrants to advisory board on March 21, 2016   1,750,000    94,691   $0.25      March 21, 2021
Issued warrants to consultant on May 1, 2016   4,000,000    721,200   $0.25      May 1, 2021
Issued warrants on May 1, 2016   1,704,680    119,072   $0.01      May 1, 2021
Issued warrants for private placement on April 18, 2016   1,008,000    94,854   $0.25      April 18, 2021
Issued warrants for private placement on May 17, 2016   2,640,000    248,221   $0.25      May 17, 2021
Exercised Warrants Typenex Co-Investments, LLC   (70,000)   -   $1.00   -
Total – as of May 31, 2016   39,055,346    8,162,487         
Issued warrants to consultant on July 6, 2016   90,000    22,500   $0.25      July 6, 2018
Issued warrants to advisory board member on August 25, 2016   250,000    559   $0.25      August 25, 2021
Issued warrants for private placement on August 31, 2016   1,000,000    108,693   $0.25      August 31, 2021
Issued warrants for private placement on September 23, 2016   780,000    82,673   $0.25      September 23, 2021
Issued warrants to consultant on November 10, 2016   100,000    8,440   $0.25      November 10, 2020
                   
Total – as of February 28, 2017   41,275,346    8,385,352         

 

As at February 28, 2017, vested and exercisable common stock purchase warrants have a weighted average price of approximately $0.47 (May 31, 2016 - $0.87) and have a weighted-average remaining contractual term of 1.14 years (May 31, 2016 – 0.71 years). It is expected the 25,499,347 unvested warrants will ultimately vest. The unvested warrants have a weighted average exercise price of $0.11 (May 31, 2016 - $0.07) per share and a weighted average remaining term of 2.48 years (May 31, 2016 – 3.62 years). 

 13 

 

Warrants vesting terms and repricing related to Convertible Debentures, Secured Converted Debentures, and Common Stock Private Placement are described in Notes 7, 8, and Note 9. All warrants not described in other notes to the interim condensed consolidated financial statements vested immediately upon issuance. Warrants issued to consultants and the advisory board in fiscal 2016 is described below.

 

The Company issued 300,000 common stock purchase warrants on September 28, 2015 to new advisors in advance of their appointment to the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. The warrants exercise price was repriced on March 21, 2016 to $0.25 and a nominal expense was recorded. The assumptions used for initial and repricing valuation are: Volatility 178-180%, expected life of five years, risk free interest rate of 1.38%-1.42%, and dividend rate of 0%.

 

The Company issued 1,700,000 common stock purchase warrants to the line of credit holder included in financing expense in contemplation of taking a pari passu security position and allowing Winterberry to act as collateral agent for the secured debenture financing. These warrants were issued November 5, 2015 have an exercise price of $1.00 with expiry date of April 7, 2019. The assumptions used for valuation were: Volatility 178%, expected life of five years, risk free interest rate of 1.65%, and dividend rate of 0%.

 

The Company issued common stock purchase warrants to a consultant in the amount of 100,000 included in financing expense on November 5, 2015 at an exercise price of $1.00 with expiry date of October 16, 2017. The assumptions used for valuation were: Volatility 178%, expected life of approximately two years, risk free interest rate of 0.85%, and dividend rate of 0%.

 

The Company issued 1,750,000 common stock purchase warrants on March 21, 2016 to new the advisory board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on March 21, 2017, second increment of 1/3 on March 21, 2018, and last 1/3 on March 21, 2019. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.38%, and dividend rate of 0%.

 

On May 1, 2016 the Company issued 4,000,000 common stock purchase warrants to an entity, Imagination 7 Ventures, LLC controlled by the former CEO at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. These warrants will vest in increments of 1/3 with the first 1/3 being vested on May 1, 2016, second increment of 1/3 on April 30, 2017, and last 1/3 on April 30, 2018. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%.

 

The Company issued 250,000 common stock purchase warrants on August 25, 2016 to a new advisory board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on August 25, 2017, second increment of 1/3 on August 25, 2018, and last 1/3 on August 25, 2019. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.13%, and dividend rate of 0%.

 

The Company issued common stock purchase warrants to a consultant in the amount of 100,000 included in consulting expense on November 10, 2016 at an exercise price of $0.25 with expiry date of November 10, 2020. The assumptions used for valuation were: Volatility 215%, expected life of approximately four years, risk free interest rate of 1.17%, and dividend rate of 0%.

  

11. Employee Benefit and Incentive Plans

 

On August 14, 2014, the Board of Directors approved the adoption of the 2014 Stock Option Plan, which was ratified by the shareholders on December 22, 2014. On August 21, 2015, the Company amended its 2014 Stock Option Plan to increase the number of shares reserved pursuant to the 2014 Stock Option Plan to 25,000,000.

 

The following table outlines the options granted and related disclosures:

 

   Stock
Options
   Weighted-
Average
Exercise Price
 
Outstanding at May 31, 2015   1,804,500   $1.00 
Granted in fiscal 2016   8,775,000    0.25 
Exercised   -    - 
Cancelled, forfeited or expired   (189,500)   1.00 
Outstanding at May 31, 2016   10,390,000   $0.28 
Granted in fiscal 2017   3,200,000    0.25 
Exercised   -    - 
Cancelled, forfeited or expired   (385,000)   1.00 
Outstanding at February 28, 2017   13,205,000   $0.25 
Options exercisable at February 28, 2017   4,069,167   $0.25 
Fair value of options vested as at February 28, 2017  $1,826,217   $- 

 

As at February 28, 2017, vested and exercisable options do not have any intrinsic value and have a weighted-average remaining contractual term of 3.77 years. It is expected the 9,135,833 unvested options will ultimately vest. These options have a weighted average exercise price of $0.25 per share and a weighted average remaining term of 4.15 years. The aggregate intrinsic value of options represents the total pre-tax intrinsic value, the difference between our closing stock price as at February 28, 2017 and the option’s exercise price, for all options that are in the money. This value was $nil as at February 28, 2017.

 

 14 

 

 

As at February 28, 2017, there is $1,800,919 of unearned stock based compensation cost related to stock options granted that have not yet vested (9,135,833 options). This cost is expected to be recognized over a remaining weighted average vesting period of 1.15 years.

 

710,000 and 520,000 of the stock options granted on August 14, 2014 and March 2, 2015 respectively vest 1/3 immediately, 1/3 after one year and 1/3 after two years. The remaining options have immediate vesting terms or have been cancelled or expired. 8,750,000 and 3,200,000 of the stock options granted on March 21, 2016 and August 25, 2016 respectively vest 1/4 immediately, 1/4 after one year, 1/4 after two years, and 1/4 after three years. The remaining 25,000 options issued on March 21, 2016 have immediate vesting terms.

 

The estimated fair value of options granted is measured using the binomial model using the following assumptions:

 

    Fiscal
2015
    Fiscal
2016
    Fiscal
2017
 
Total number of shares issued under options     1,804,500       8,775,000       3,200,000  
Stock price   $ 0.60-1.00     $ 0.20     $ 0.20  
Exercise price   $ 1.00     $ 0.25     $ 0.25  
Time to expiration – days (2 year options)     730        NA        NA  
Time to expiration – days (5 year options)     1,826       1,826       1,826  
Risk free interest rate (2 year options)        .42-.66 %      NA %      NA %
Risk free interest rate (5 year options)        1.57-1.58 %     1.38 %     1.13 %
Forfeiture rate (all options)     0 %     0 %     0 %
Estimated volatility (all options)     150 %     180 %     191 %
Weighted-average fair value of options granted     0.50-0.90       0.25       0.25  
Dividend     -       -       -  

 

The assumptions used in the stock based compensation binomial models are consistent with the methodology used in valuing the Company’s other derivatives from debt and warrant financings. Due to a lack of history regarding the exercise of options, the Company has assumed the expected life of the options is the contractual life of the options.

 

12. Related Party Balances and Transactions

 

Services provided by Intertainment Media, Inc. personnel in the prior fiscal year were invoiced on a per hour basis at a market rate per hour as determined by the type of activity and the skill set provided. Costs incurred by Intertainment Media, Inc. on behalf of the Company for third party purchases are invoiced at cost. There were no services provided by Intertainment Media, Inc. to Yappn for the three and nine month period ended February 28, 2017. For the year ended May 31, 2016, related party fees incurred and paid for general development and managerial services performed by Intertainment Media, Inc. and its subsidiary totaled $146,982. $92,589 is related to managerial services and $54,393 related to development. As of May 31, 2016, the related party liability balance totaled $16,654. As at February 28, 2017, there is no obligation to Intertainment Media, Inc.

 

On September 15, 2015, the Company closed an agreement with Ortsbo to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know how. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn. During the fiscal year 2016, 12,998,682 shares were issued comprising of 8,312,500 to Ortsbo and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608, leaving 18,988,318 shares (currently reserved for issuance) to be issued at February 28, 2017 comprising 17,687,500 to Winterberry and 1,300,818 to a former holder of Ortsbo stock. As of the filing date, these aforementioned shares remain to be issued and are subject to instructions from the recipients. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 6). The fair value for the agreed upon consideration for the acquisition of Intellectual property from Ortsbo was $16,968,888. This transaction was completed on September 15, 2015. Due to the common control of Ortsbo Inc. and Yappn Corp at the time of the acquisition, the value of the Intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo. This value was $5,421,067 on September 15, 2015 (Note 4).

 

Directors subscribed for $1,783,526 of $4,550,388 from the secured debenture private placement that closed in September 2015 at which time they were not directors (Note 6). Significant investments made by directors include Luis Vasquez-Senties (a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in September 2015, David Berry (a current member of the Board of Directors) subscribed for $733,526 from the secured debenture offering that closed in September 2015, and Winterberry Investments Inc. (an entity controlled by David Berry, a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in September 2015.

 

Directors also subscribed for $1,075,000 of the $2,040,000 convertible secured debentures issued on December 30, 2015 (Note 8). Significant investments made by directors include Luis Vasquez-Senties (a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in December 2015, David Berry (a current member of the Board of Directors) through a related entity which he does not control subscribed for $500,000 from the secured debenture offering that closed in December 2015.

 

 15 

 

 

David Berry (a current member of the Board of Directors) through a related entity in which he does not control advanced $170,468 to the Company on an anticipated second closing of the same convertible secured debenture financing closed on December 30, 2015 (Note 8). This $170,468 closing occurred on May 1, 2016.

 

The Company issued 300,000 common stock purchase warrants on September 28, 2015 to advisors prior to their appointment as members of the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. These warrants were repriced to $0.25 on March 21, 2016 and are valued at $233,490.

 

The Company issued 1,750,000 common stock purchase warrants on March 21, 2016 to members of the Company’s Advisory Board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation.

 

The Company issued 250,000 common stock purchase warrants on August 25, 2016 to a recently appointed Advisory Board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation.

 

On May 1, 2016, the Company completed secured debenture financing with a consultant, whose principal is the former CEO of the Company, for $200,000 with no warrant financing, through the offering of units by way of private placement, with each unit consisting of a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. This closing was a conversion of $200,000 in consulting expense. The Company also issued 4,000,000 common stock purchase warrants at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. Consultant was also granted a $100,000 signing bonus payable in cash. All obligations prior to May 1, 2016 due directly or indirectly to the former CEO of Yappn including $294,906 in cash obligations as an employee and $18,200 as a consultant, have been forgiven. All obligations being forgiven were recorded as general and administrative expenses within fiscal 2016 and were reversed out from general and administrative expenses.

 

1,200,000 of the shares from the 2nd tranche of common stock private placement at $0.25 per unit totaling $300,000 in cash proceeds were issued to members of the Board of Directors. Significant investments made by Directors include Luis Vasquez-Senties (a current member of the Board of Directors) who advanced $200,000 to the Company (Note 9).

 

1,000,000 of the shares from the 3rd tranche of common stock private placement at $0.25 per unit totaling $250,000 in cash proceeds and compensation for consulting work were issued to members of the board of directors. Significant investments made by Directors include Winterberry Investments Inc. (an entity controlled by David Berry, a current member of the Board of Directors) who advanced $100,000 to the Company (Note 9).

 

80,000 of the shares from the 4th tranche of common stock private placement at $0.25 per unit totaling $195,000 in cash proceeds were issued to a member of the advisory board (Note 9).

 

On March 21, 2016, the Board of Directors passed a resolution for a contingent common stock award in line with the metrics used in the CEO’s targets for additional bonus compensation. The award would see the members of the Board of Directors as well as the Advisory Board receive common shares for the Company reaching revenue milestones. Per the resolution, 500,000 common shares for each member of the Board of Directors and 250,000 for each Advisory Board member would be issued when the following milestones are met: (i) $3.5 million in new revenue generated and realized within 12 months of the start date of the CEO which was February 22, 2016 and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date; or (ii) $5 million of new revenue generated and realized within 24 months of the start date and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date. As of February 22, 2017, milestone in (i) was not met.

 

On August 25, 2016 a recently appointed Advisory Board member received the same contingent common stock award of 250,000 common shares as described above for the March 21, 2016 award to Advisory Board members. 

 

During the second and third quarter of fiscal 2017, three directors provided an aggregate total of $1,326,348 as an advance to the Company that will be part of a longer term financing that has not yet closed.

  

13. Subsequent events

 

Subsequent to the quarter end, a director advanced $250,000 as an advance to the Company that will be part of a longer term financing that has not yet closed.

 

On March 14, 2017, the Company finalized warrant amendments for previous debenture holders as part of the settlement with DWF stakeholders (Note 3). The Series A, B, and D warrants exercise price for those holders was repriced to $0.25 from $1.00, $2.00, and $2.20 respectively and the maturity date was extended an additional one year to now expire in 2020.

 

 16 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to “we,” “Yappn,” “us,” and “our” are to Yappn Corp., unless the context requires otherwise. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited Interim Condensed consolidated financial statements and the accompanying related notes included in this quarterly report and our audited financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended May 31, 2016 filed with the Securities and Exchange Commission.

 

Forward Looking Statements

 

The discussion contained in this Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,” “we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we plan,” the negative of those terms, and similar words or phrases. We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Quarterly Report. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Quarterly Report describe factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in this Quarterly Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available after the date of this Quarterly Report or the date of documents incorporated by reference herein that include forward-looking statements.

 

The discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States (or “GAAP”). The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions. 

 

Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with our Financial Statements and Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2016, filed with the Securities and Exchange Commission on August 18, 2016. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.

 

Business History

 

We were originally incorporated under the laws of the State of Delaware on November 3, 2010 with an initial business plan to import consumer electronics, home appliances and plastic housewares. In March 2013, we filed an amended and restated certificate of incorporation to change our name to “YAPPN Corp.” and increase our authorized capital stock to 200,000,000 shares of common stock, par value $0.0001 per share and 50,000,000 shares of preferred stock, par value $0.0001 per share. Further, in March 2013, our Board of Directors declared a stock dividend, whereby an additional 14 shares of our common stock was issued for each one share of common stock outstanding to each holder of record on March 25, 2013. All per share information in this report reflect the effect of such stock dividend. On December 22, 2014, our shareholders approved the increase of authorized and issued shares of common stock to 400,000,000 shares of common stock.

 

On March 28, 2013, we purchased a prospective social media platform and related group of assets known as Yappn (“Yappn”) from Intertainment Media, Inc. (“IMI”), a corporation organized under the laws of Canada, for 7,000,000 shares of our common stock, pursuant to an asset purchase agreement (the “Purchase Agreement” and the transaction, the “Asset Purchase”) by and among IMI, us, and our newly formed wholly owned subsidiary, Yappn Acquisition Sub., Inc., a Delaware corporation (“Yappn Sub”). Mr. David Lucatch, our prior Chief Executive Officer was the Chief Executive Officer of IMI at that time. IMI, as a result of this transaction had a controlling interest in our company. Included in the purchased assets is a services agreement (the “Services Agreement”) dated March 21, 2013 by and among IMI and its wholly owned subsidiaries Ortsbo, Inc., a corporation organized under the laws of Canada (“Ortsbo Canada”), and Ortsbo USA, Inc., a Delaware corporation (“Ortsbo USA” and, collectively with Ortsbo Canada, “Ortsbo”). On July 6, 2015, we entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo (see below).

 

On July 15, 2015, after the approval of the Board of Directors of each company, Intertainment Media and our company entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo.

 

The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of approximately $17 Million, which was paid by the assumption of approximately $1 Million in debt and the obligation to issue $16 Million worth of our restricted common shares (32 Million shares at $0.50 per share).

 17 

 

 

Intertainment Media received Toronto Stock Venture Exchange final approval on September 14, 2015 to proceed with the transaction. On September 15, 2015, the acquisition of Ortsbo Intellectual property by our company was closed.

 

Our principal executive offices are located at 1001 Avenue of the Americas, 11th Floor, New York, NY 10018 and our telephone number is (888) 859-4441. Our website is http://www.yappn.com (Our website is expressly not incorporated into this filing).

 

Our Business

 

Yappn delivers real-time language translation products which enable vendors and consumers to communicate freely with one another, each in their own preferred languages. The result is increased business and customer satisfaction.

 

Being able to conduct business in multiple languages is essential. As per Common Sense Advisory (a research company specializing in the areas of translation, localization, interpreting, internationalization, globalization, marketing, international strategy, market intelligence, web content, and procurement), Global eCommerce sales continue to increase at a rate of 15 percent per year and more than 72 percent of consumers say they are more likely to purchase online if the experience is in their preferred language.

 

Breaking down language barriers creates business opportunities and promotes efficiency and effectiveness within organizations. While internet challenges have largely been solved, resolving language barriers remains a costly issue for every company wishing to access global markets.

 

Through its proprietary innovative language solutions, we believe Yappn has altered the translation paradigm by offering a completely customizable set of tools to engage consumers in up to 67 languages. Yappn’s technology gives people, brands and organizations the power to be social, conduct commerce and communicate freely without a language barrier.

 

Generic machine translation, which can be found from providers like Google TranslateTM or Microsoft BingTM, employ a “word-for-word” approach. Unfortunately, the translated result does not always reflect the essence of the original text and may not make sense. Context (cultural, political and ethnic), syntax and meaning are simply not captured through generic machine translation methods.

 

Yappn provides far more than simple word-for-word translation. Yappn translates the words as well as the context and syntax, thereby ensuring that what is written in one language is translated into another in an accurate, meaningful and relevant way. This capability is Yappn’s key differentiator.

 

Yappn has the ability to detect the online or mobile user’s preferred language and translates the communication into the user’s language in real-time. Yappn provides very “high fidelity” and accurate translation, without the necessity of direct human translation or intervention, with an added option to customize translation settings, making the results simple, elegant and cost effective.

 

Yappn offers products for eCommerce, customer care, enhanced messaging collaboration (such as intranets, gaming or social platforms), online marketing and custom translation solutions to a variety of verticals including entertainment, retail and marketing.

 

Continued expansion of our business rollout will likely require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. We are in the early stage of commercialization, and management believes that we have insufficient revenues to cover our operating costs. As such, we have incurred an operating loss since inception. This and other factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required, and ultimately to attain profitability. Our independent auditors have included an explanatory paragraph, in their audit report on our financial statements for the fiscal year ended May 31, 2016 regarding concerns about our ability to continue as a going concern. Footnote 2 to the Notes to this Form 10-Q Report also discusses concerns about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Our Strategy

 

Our management believes that Yappn approaches the challenge of real-time language translation in an entirely unique way. The result is enhanced translations based on the context of the content or discussion, thereby significantly improving the translation result.

 

To accomplish this, Yappn leverages the power of multiple generic machine translation (MT) providers, recognizing that many of these commodity services specialize and produce substantially better results in some languages over others. This aggregated generic machine translation is then passed through Yappn’s proprietary algorithms and enhancement processes which, in turn, provide the optimal translation for the language requested. Yappn then applies yet another overlay of refinement through ‘lexicons’. Lexicons are essentially custom dictionaries designed to improve the translation by contextualizing the result and making it relevant to the specific commercial requirement. Lexicons can be industry or brand specific or both.

 

An illustrative example of how Yappn’s lexicons work is reflected in its ability to distinguish between a car transmission versus a radio transmission. Similarly, the system understands that the word “travel” means something different in basketball than it does when planning a trip. Companies use various words in unique ways and Yappn’s lexicons continuously evolve, improve and store these subtle nuances and then apply them to the final output to provide an enhanced and more optimal translation.

 

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Yappn is not a generic machine translation provider but an enhancement to create better, customized results. Additionally, Yappn is not a Language Service Provider (LSP) simply returning a document in another language; instead Yappn provides tools and solutions to better utilize translation in the course of business.

 

Yappn’s tools and solutions are built with industry leading technology and hosted on the Microsoft Azure® cloud-based platform which provides Yappn with global reach, dependable presence, and dynamic scalability.

 

To be certain that translation is highly accurate, Yappn’s services team initially works with the customer to develop an appropriate database of lexicon additions which can be further improved after deployment using Yappn’s professional services or custom tools. The lexicon can be enhanced on an on-going basis by the customer’s staff as-needed when additions and revisions are required.

 

Yappn can enable an auto update feature that can be used on demand or as a persistent connection that senses updates to the translation source then has each addition either automatically changed or optionally human verified for fidelity, followed by an update to the customer’s lexicon. For example, when a product description is updated; the machine translation will instantly display the change in the store.

 

The Yappn application suite is designed to provide a competitive advantage to commercial enterprises and power social users to communicate more effectively without a language barrier, fostering and driving a competitive edge in a global marketplace.

 

Offering an “a la carte” menu of tools to engage consumers, Yappn helps clients improve their customer’s experiences and therefore increase customer satisfaction. 

 

eCommerce Platform Integration: Dynamic translation encompassing the entire eCommerce experience, from online marketing to sales and customer care

 

  eCommerce website
  Vendor input manager
  Chat
  Multilingual search

 

Customer Care: Real-time translation of chat-based customer care

 

  Customer care integration
  Custom help solutions

 

Enhanced Messaging: Real-time translation support for messaging platforms

 

  Intranet
  Social sharing & messaging
  Business sharing & messaging
  Gaming sharing & messaging

 

Marketing: Online marketing, engagement and socialization

 

  Social Wall
  Global tweets
  Twitter chats
  Multilingual live captioning & flash social events

 

Custom Translation Solutions: Solutions for unique translation requirements

 

  Dynamic website translations
  Software localization
  Video closed captioning
  Virtual trade shows

 

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eCommerce Platform Integration

 

Our technology is, we contend, a game changing solution, providing a set of stand-alone commercial tools for brands to easily implement cost effective globalization solutions that support the entire sales cycle, inclusive of the eCommerce website, shopping cart checkout, marketing, sales and support. No longer is a company constrained to whom they can sell to because of language.

 

The Yappn eCommerce experience is more than a simple translation of a store. eCommerce applications exist today to translate a copy of a store to another language. However, creating a separate instance of a store in another language is problematic as it can cause several business issues that are difficult to rectify, for example, inventory reconciliation and amalgamated sales reporting would be left to the vendor to handle manually. The Yappn solution of enabling a single store that is presented in the customer’s language of choice is a better business solution as we believe it will negate these issues.

 

We have made the integration of these services into a store quite simple. We use standardized web technologies to connect a secondary database of the translations of the text, metadata and keywords on the site. The benefit of the database connection is the ability to call accompanying data such as imagery, (e.g. replacing an English ad with a Spanish ad) and the ability to manage translation without coding expertise. This integration also allows Yappn to access the text components of a secure third party checkout screen, thereby reducing cart abandonment, which, we contend, is unique to our services.

 

Security and privacy is maintained via a variety of solutions such as SSL encryption and the exception of customer/user identification and private information from machine translation services.

 

Customer Care Platform Integration

 

Yappn Customer Care allows customers to chat in their language of choice, while our clients can staff their customer care operations in their language of choice.

 

Chat is quickly becoming the preferred means for companies to communicate with their customers. Chat is replacing voice and e-mail providing a window of opportunity for companies to better serve their customers and to do so more cost effectively.

 

Using the Yappn system’s multilingual translation API in conjunction with the client’s existing chat portal, a Customer Service Representative (CSR) can converse with customers in the customer’s language of choice with Yappn’s technology bridging the language gap between the two individuals.

 

This allows the CSR to think and type in their native language thereby providing better and more accurate service while reducing customer care costs. Employing multilingual CSR staff is expensive and unnecessary with the use of Yappn’s customer care solution.

 

Enhanced Messaging Platform Integration

 

Our proprietary and easily integrated Enhanced Messaging Solution allows for real time communication between languages in a myriad of platforms for social, business and gaming messaging. The translation is contextualized to provide superior translation results.

 

Much of the communication that transpires on messaging platforms is conducted in a single language. This is not always by choice but instead, is driven by the limitations of the platforms themselves.

 

Companies that communicate internally but have staff, partners and customers with different languages can communicate more effectively when the barrier of language is removed.

 

Our management contends that our technology can securely integrate into existing chat platforms through a simple API connection to our Microsoft Azure® cloud platform, reducing existing workflow disruptions which would require changes to a client work environment.

 

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Marketing Platform Integration

 

We have created several tools to support online marketing customized for a global audience.

 

Social Wall: a fully branded and customized page, which includes the aggregation of a company’s major social media accounts and #hashtags automatically displayed in any of the 67 languages. This allows followers to interact with all their social media accounts, in their language and on the company’s website, giving the company back control of its marketing initiatives. Essentially, a company can present a variety of social media sources on a single page in the language of a customer’s choice, regardless of the original language the social media content was written in.

 

Multilingual Chat: provides companies, brands, organizations and consumers with the ability to have topical discussions in almost any language. Each user sees the chat experience in their preferred language and communicates to others in that language, allowing every user to have a native experience in their individual language. The chat can be embedded to facilitate commenting on blogs, special event discussions with brand ambassadors or as a standalone program, providing a place to discuss the company’s brand.

 

Live and Global Events: a tool to promote a company’s brand which embeds our interface directly onto the company’s website where the company can direct their consumers to attend a live Q&A while promoting the company’s brand on social media. The technology allows the company to filter and reply to questions posted on Twitter™ and display them in an easy to read format on the company website, creating a captive audience to market to. Yappn’s easy-to-use backend even allows the company to reply to the attendees in their native language while automatically displaying the entire event in a user’s individual language automatically.

 

Video Captioning: If video promotion is an element of a company’s marketing strategy, allowing a global audience to watch and understand these videos is a natural complement. Yappn’s translation system provides simple and accurate video sub-titling in up to 67 languages, on a live or pre-recorded video, without disruption to the company’s current broadcast process.

 

Custom Translation Solutions

 

Our company, we believe, is a consistent agile developer of tools and solutions to address the three important elements of conducting business: online marketing, sales and customer care. We are, however, keenly aware that technologies and trends are evolving almost as fast as we are. For this reason, Yappn publishes its technology via a secured API to enable today’s entrepreneurs to enhance their innovations with language capabilities. This secure credential-enabled connection is available in a SaaS or by way of pay per use models and can be tested in sandbox environments. Each installation comes with full support from our development teams.

  

The Services Agreement

 

We acquired the rights to use the technology and management and development support services under the Services Agreement, dated March 21, 2013 and amended October 2013, between Intertainment Media, Inc. (“IMI”), and IMI’s wholly owned Ortsbo subsidiaries. Pursuant to the terms of the Services Agreement, Ortsbo made available to us its representational state transfer application programming interface (the “Ortsbo API”), which provides multi-language real-time translation as a cloud service. The Services Agreement also provides that Ortsbo makes its “Live and Global” product offering, which enables a cross language experience for a live, video streaming production, available to us as a service for marketing and promoting the Yappn product in the marketplace (the “Services”). The Services did not include the “chat” technology itself and we were solely responsible for creating, securing or otherwise building out our website and any mobile applications to include chat functionality, user forums, user feedback, and related functionality within which the Ortsbo API could be utilized to enable multi-language use. Under the initial agreement, no intellectual property owned by Ortsbo would be transferred to us except to the extent set forth in the Services Agreement as described in “Intellectual Property” set forth below.

 

In October 2013, we amended the Services Agreement. Under the terms of the amendment to the Services Agreement, we had the first right of refusal to purchase the Ortsbo platform and all its assets and operations for a period of two years; increasing the use of Ortsbo's technology for business to consumer social programs at a purchase price to be negotiated at the time we exercise our right. We had a right to purchase a copy of the source code only applicable to Yappn programs for $2,000,000 which may be paid in cash or restricted shares of our common stock at a per share price of $1.50 per share. As part of the agreement, we issued Ortsbo 166,667 shares of our restricted common stock. On April 28, 2014, we exercised our right to purchase a copy of the source code for the Ortsbo property in exchange for 1,333,333 shares of restricted common stock for a value of $2,000,000.

 

On July 6, 2015, we entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo which closed on September 15, 2015. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of approximately $17 Million, which was paid by the assumption of approximately $1 Million in debt and the issuance of $16 Million worth of our restricted common shares (32 Million shares at $0.50 per share). Upon the completion of the transaction on September 15, 2015 the amended Services Agreement was terminated. 

 

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Competition

 

Our business relating to and arising from the development of our assets is characterized by innovation, rapid change, patented, proprietary, and disruptive technologies. We may face significant competition, including from companies that provide translation and tools to facilitate the sharing of information that enable marketers to display advertising and that provide users with multilingual real-time translation of Ecommerce, events and proprietary social media and chat platforms. These may include:

 

  Companies that offer full-featured products that provide a similar range of communications and related capabilities that we provide.
     
  Companies that provide web and mobile-based information and entertainment products and services that are designed to engage users.
     
  Companies that offer Ecommerce solutions with built in language support.
     
  Traditional and online businesses that offer corporate sponsorship opportunities and provide media for marketers to reach their audiences and/or develop tools and systems for managing and optimizing advertising campaigns.

 

Competitors, in some cases, may have access to significantly more resources than Yappn.

 

We anticipate that we will compete to attract, engage, and retain clients and users, to attract and retain marketers, to attract and retain corporate sponsorship opportunities, and to attract and retain highly talented individuals, especially software engineers, designers, and product managers. As we introduce new features to the Yappn platform, as the platform evolves, or as other companies introduce new platforms and new features to their existing platforms, we may become subject to additional competition. We believe that our ability to quickly adapt to a changing marketplace, and our experienced management team, will enable us to compete effectively in the market. 

 

Intellectual Property

 

We own (i) the yappn.com domain name (which website is expressly not incorporated into this filing) and (ii) the Yappn name and all trademarks, service marks, trade dress and copyrights associated with the Yappn name, logo and graphic art. We may prepare several patent filings in the future. Upon payment of the applicable fees pursuant to the Services Agreement described above, we became the exclusive owner of copyright in the literary works or other works of authorship delivered by Ortsbo to us as part of the Services provided under the Services Agreement (the “Deliverables”). All such rights shall not be subject to rescission upon termination of the Services Agreement. Also as set forth in the Services Agreement, we shall grant to Ortsbo (i) a non-exclusive (subject to certain limitations) license to use the Deliverables for the sole purpose of developing its technology, (ii) a non-exclusive license to use, solely in connection with the provision of the Services, any intellectual property owned or developed by us or on our behalf and necessary to enable Ortsbo to provide the Services and (iii) a license to use intellectual property obtained by us from third parties and necessary to enable Ortsbo to provide the Services. All such licenses shall expire upon termination of the Services Agreement.

 

On April 28, 2014, we purchased a copy of the source code for the Ortsbo property and all the rights associated with it.

 

On July 16, 2015, we entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo which closed on September 15, 2015. The purchased assets include US No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how (Proprietary lexicons and linguistic databases that integrate into our language services platform). Upon completion of the transaction on September 15, 2015 the amended Services Agreement was terminated. 

 

We continue to engage in activities to maintain and further build differentiated technologies that increase our intellectual properties.

 

Government Regulation

 

We are subject to a number of U.S. federal and state, and foreign laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and being tested in courts, and could be interpreted in ways that could harm our business. These may involve user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and online payment services. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of user data. Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly-evolving industry in which we operate. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection which could affect us. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance. We are also monitoring the consequences on our industry as a result of the new administration commencing January 20, 2017 including the legislation on the open Internet and the March 2017 repeal of broadband privacy rules.

 

Legal Proceedings

 

None.

 

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Registration Statement

 

On October 3, 2016, the Company filed a Registration Statement on Form S-1 (File No.333-213947) (the “Registration Statement”) with the Securities and Exchange Commission for up to 14,840,964 shares of our Company’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders that are issued and outstanding upon conversion of promissory notes, related past due accrued interest and penalties and/or warrants currently held by those selling stockholders, specifically (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of common stock purchase warrants. The common stock purchase warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement covering the above noted shares was declared effective under the Securities Act of 1933 on January 24, 2017.

 

RESULTS OF OPERATIONS

 

Three months ended February 28, 2017

 

Revenues

 

We are in the process of the commercialization of our various product offerings. We had revenues of $65,130 and $101,537 for the three months ended February 28, 2017 and February 29, 2016, respectively. The majority of the revenue earned in the three months ended February 28, 2017 is from two customers and accounts for 91% of the total revenue. No revenue earned for the three months ended February 28, 2017 related to professional services provided for Intelligent Content Enterprises Inc. (“ICE”). Comparative period revenues resulted from the professional services related to the Digital Widget Factory (Belize) (“DWF”) program. The DWF assets were acquired by ICE effective February 29, 2016 and thus no further billings were made to DWF since that date. Billings as part of professional and language services for the program subsequent to February 29, 2016 were through ICE and as expected were lower than the average billings to DWF. Our management has focused on developing relationships with large commercial partners and influencers, which has delayed revenue realization from prospective customers in recent quarters.

 

Cost of revenue

 

We incurred costs of revenues of $42,343 and $9,134, for the three months ended February 28, 2017 and February 29, 2016, respectively. These costs were directly attributable to the revenues generated in the applicable periods and vary due to different customer mix between the periods and resulted in a gross profit of $22,787 and $92,403, for the three months ended February 28, 2017 and February 29, 2016, respectively.

 

Total operating expenses

 

During the three months ended February 28, 2017 and February 29, 2016, total operating expenses were $1,268,376 and $1,295,610, respectively.

 

For the three months ended February 28, 2017, the operating expenses consisted of marketing expense of $3,251, research and development expenses of $183,396, general and administrative expenses of $357,671, professional fees of $46,724, consulting fees of $72,438, depreciation of $3,341, amortization of $265,880, and stock based compensation of $335,675. For the comparable three months ended February 29, 2016 the operating expenses consisted of marketing expenses of $26,152, research and development expenses of $109,203, general and administrative expenses of $497,826, professional fees of $241,025, consulting fees of $92,590, depreciation of $102, amortization of $263,940 and stock based compensation of $64,772.

 

Marketing Expenses

 

The reduction in marketing expenses of $22,901 or 88% is due mainly to a realignment of spending by the company. In the three months period ending February 29, 2016 we incurred higher costs as a result of promoting the Yappn brand through consultants and various promotional expenses. In three months ending February 28, 2017, we substantially reduced the spending on consultants engaged in marketing activities and focused our efforts on operationalizing the current products based on more direct sales channels.

 

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Research and Development

 

Research and development expenses increased by $74,193 or 28% in the three months ended February 28, 2017 over the three months ended February 29, 2016. The increase in the current three month period is due to expansion of the internal development team while also keeping third party consultants engaged. There were no research and development costs from Intertainment Media and Ortsbo in fiscal 2017. There were significant costs incurred in development of the various technologies supporting the business towards the commencement of commercialization. There will continue to be maintenance and ongoing development customization to ensure our technology solutions meet required standards for our current and prospective customers.

 

General and administrative expenses

 

General and administrative expenses decreased by $140,155 or 68% in the three months ended February 28, 2017 over the three months ended February 29, 2016. These costs generally include executive and office salaries, as well as general office expenses or costs. Salary costs have remained relatively consistent due to a combination of factors. The overall headcount has decreased but employee costs are higher due to the addition of executives in late fiscal 2016. Certain other costs have been reduced or eliminated such as billings from Intertainment Media under the services agreement and employee headcount in the US office. Billings from Intertainment Media ceased due to the acquisition of the Intellectual Property and assets from Ortsbo on September 15, 2015 and the subsequent cancellation of the Services Agreement. We anticipate that costs in fiscal 2017 will be relatively consistent period over period as we continue to work to develop a customer base and meet the needs of investors to finance our operation. Upon further significant increases in revenue, management will continue to hire qualified personnel, but the growth of this cost, we believe, will be far less than the impact to Net Loss.

 

Professional fees

 

Professional fees decreased by $194,301 or 81% for the three months ended February 28, 2017 over the three months ended February 29, 2016 and includes audit and audit related services pertaining to the year-end audits, and legal fees related to both ongoing operational compliance for the business and for financing closings. Although audit related fees have generally stayed consistent, the comparative period had higher legal fees as a result of various financings that closed during fiscal 2016.

 

Consulting fees

 

Consulting fees decreased by $20,152 or 22% and are mainly due to a reduction in spending on consultants. In the comparative period, Company had five different consultants engaged whereas in the current three month period, Company has only three consultants engaged. This is expected to be consistent in the near term due to the Company’s overall realignment of spending.

 

Amortization of Intangible Assets

 

Amortization of $265,880 relates almost entirely to Technology and Intellectual Property purchased during fiscal 2016 which we are amortizing over 5 years on a straight-line basis as well as a patent that was granted in late fiscal 2016. The difference of $1,940 or 1% increase over the comparative period is nominal and due to amortization of a patent issued late fiscal 2016. On September 15, 2015, we finalized our purchase of Intellectual property assets of Ortsbo pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015.

 

Stock based compensation

 

Stock based compensation increased by $270,903 or 418%. This increase is due mainly to issuance of options to management and the Board of Directors, and warrants to the new advisory board in late fiscal 2016. Additional warrants were also issued to the board of directors and a new advisory board member in early fiscal 2017. Overall values ascribed will be different for each period based on the underlying assumptions used at the time of each grant. The stock options expense is determined using the binomial tree valuation method, which is an acceptable method under US GAAP.

 

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Total other income and expenses

 

Other (income)/expenses totaled $(729,361) and $576,376, for the three months ended February 28, 2017 and February 29, 2016, respectively. The change of $1,305,736 is due to interest expense, change in fair value of convertible debentures and notes, impairment of note receivable, gain on debt settlement, and miscellaneous (income)/expense. During the three months ended February 28, 2017, total other (income)/expense consisted of interest expense of $272,402, a loss resulting from the change in fair value of the convertible debentures and notes of $108,950, other miscellaneous expense of $8,376, and gain on debt settlement of $(1,119,089). During the three months ended February 29, 2016, total other (income)/expense consisted of interest expense of $268,222, a loss resulting from the change in the fair value of the convertible debentures and notes of $289,881, prepayment fees on variable notes of $29,350, and miscellaneous other income of $(11,077).

 

Interest Expense

 

Interest expense increased by $4,180 or 2% for the three months ended February 28, 2017 over the three months ended February 29, 2016. The slight increase is mainly due to an increase in interest expense due to additional financings closed in fiscal 2016 which were offset by lower interest expense on previous convertible debentures that converted late fiscal 2016 and early fiscal 2017. We closed multiple secured debenture financings in fiscal 2016 totaling approximately $6.7 million, most of which was new debt for us at the time. Additionally, we incurred a higher penalty interest on convertible debentures from fiscal 2014 that reached maturity in late fiscal 2016 and early fiscal 2017.

  

Change in fair value of convertible promissory notes and convertible secured debentures

 

Change in fair value of convertible debentures and notes expense was a loss resulting in decrease in the recognized loss by $180,931 in the three months ended February 28, 2017 over three months ended February 29, 2016 as the existing debt instruments continued to have fair value adjustments until they reached maturity in late fiscal 2016 and early fiscal 2017, in addition to the new secured debentures that were issued during the prior fiscal year 2016. The loss from fair value adjustment largely relates to accretion fair value changes on various convertible debentures and notes.

 

Payment fees on variable conversion priced notes

 

Payment fees on variable conversion priced promissory notes is significantly lower by $29,350 or 100% in three months ended February 28, 2017 over three months ended February 29, 2016, as we repaid the variable conversion priced notes in the prior fiscal year. As of February 28, 2017, we do not have any further variable conversion priced promissory notes.

 

Miscellaneous expense/(income)

 

Miscellaneous expense/(income) was an expense of $8,376 for the three months ended February 28, 2017, compared to a gain of $(11,077) for the three months ended February 29, 2016 resulting in incremental change in the recognized gain/loss by $19,453. The expense/(income) is largely a function of foreign exchange expense/(income) and write-off of payables that Company is no longer required to pay either due to a settlement or management has concluded the obligations are barred by the statute of limitations. A small portion of the foreign exchange is a cash expense in bank spread for currency variance conversion between the US dollar and the Canadian dollar. The remaining foreign exchange expense/ (income) was incurred on changes in the foreign exchange rate and the foreign denominated liabilities.

 

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Gain on debt settlement

 

In the three month period ending February 28, 2017, the gain on debt settlement of $1,119,089 was related entirely to settlement of various debt obligations of our company in conjunction with a settlement arrangement with DWF. On February 28, 2017, management reached a go forward resolution with DWF stakeholders. We agreed to reduce our stake in the DWF assets to $800,000 which will be in the form of a new investment in DWF with the specific terms to be determined. This reduced position in DWF’s assets is in exchange for DWF stakeholders forgiving all unsecured debentures, secured debenture, term debt and related interest that were obligations of our company. More specifically, we settled $305,000 of unsecured convertible debentures and accrued interest of $91,408 with Series A and B common stock purchase warrants repriced to $0.25 and an extension of one year to maturity of both warrants, $250,000 of unsecured convertible debentures and accrued interest of $43,613 with Series D warrants repriced to $0.25 and an extension of one year to maturity of the warrants, $65,228 of unsecured term loans and related interest of $16,512, and $200,000 of secured convertible debentures and accrued interest of $20,000 issued to a consultant.

 

Net loss and comprehensive loss

 

During the three months ended February 28, 2017 and February 29, 2016, we had net loss and comprehensive loss of $516,228 and $1,779,583 respectively.

 

Nine months ended February 28, 2017

 

Revenues

 

We are in the process of the commercialization of our various product offerings. We had revenues of $272,196 and $911,918 for the nine months ended February 28, 2017 and February 29, 2016, respectively. The majority of the revenue earned in the nine months ended February 28, 2017 is from three customers and accounts for 88% of the total revenue. $88,390 of revenue for the nine months ended February 28, 2017 related to professional services provided for Intelligent Content Enterprises Inc. (“ICE”). Comparative period revenues resulted from the professional services related to the Digital Widget Factory (Belize) (“DWF”) program. The DWF assets were acquired by ICE effective February 29, 2016 and thus no further billings were made to DWF since that date. Billings as part of professional and language services for the program subsequent to February 29, 2016 were through ICE, and were expected and have been lower than the average billings to DWF. Our management has focused on developing relationships with large commercial partners and influencers, which has delayed revenue realization from prospective customers in recent quarters.

 

Cost of revenue

 

We incurred costs of revenues of $93,760 and $146,068, for the nine months ended February 28, 2017 and February 29, 2016, respectively and vary due to different client mix between the periods. These costs were directly attributable to the revenues generated in the applicable periods and resulted in a gross profit of $178,436 and $765,850, for the nine months ended February 28, 2017 and February 29, 2016, respectively.

 

Total operating expenses

 

During the nine months ended February 28, 2017 and February 29, 2016, total operating expenses were $3,938,554 and $3,457,744, respectively.

 

For the nine months ended February 28, 2017, the operating expenses consisted of marketing expense of $20,596, research and development expenses of $469,967, general and administrative expenses of $1,159,021, professional fees of $155,482, consulting fees of $184,747, depreciation of $5,773, amortization of $797,630, and stock based compensation of $1,145,338. For the comparable nine months ended February 29, 2016 the operating expenses consisted of marketing expenses of $224,900, research and development expenses of $301,168, general and administrative expenses of $1,272,484, professional fees of $401,048, consulting fees of $295,665, depreciation of $300, amortization of $483,890 and stock based compensation of $478,289.

 

Marketing Expenses

 

The reduction in marketing expenses of $204,304 or 91% is due mainly to a realignment of spending by the company. In the nine months ending February 29, 2016 we incurred higher costs as a result of promoting the Yappn brand through consultants and various marketing and promotional initiatives. In the nine months ending February 28, 2017, we reduced the spending on consultants engaged in marketing activities and focused our efforts on operationalizing the current products based on more direct sales channels.

 

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Research and Development

 

Research and development expenses increased by $168,799 or 56% in the nine months ended February 28, 2017 over the nine months ended February 29, 2016. Our research and development costs in the comparative period are partially for fees to technology consultants from Intertainment Media and Ortsbo, with a much higher weighting on our own employees and arm’s length third party consultants. There were no research and development costs from Intertainment Media and Ortsbo in fiscal 2017. There were significant costs incurred in development of the various technologies supporting the business towards the commencement of commercialization. These included expanding the internal development team while also keeping third party consultants engaged. There will continue to be maintenance and ongoing development customization to ensure our technology solutions meet required standards for our current and prospective customers.

 

General and administrative expenses

 

General and administrative expenses decreased by $113,463 or 9% in the nine months ended February 28, 2017 over the nine months ended February 29, 2016. These costs generally include executive and office salaries, as well as general office expenses or costs. Salary costs have relatively remained consistent due to a combination of factors. The overall headcount has decreased but employee costs are higher due to the addition of executives late in fiscal 2016. Certain other costs have been reduced or eliminated such as billings from Intertainment Media under the services agreement and employee headcount in the US office. Billings from Intertainment Media ceased due to the acquisition of the Intellectual Property and assets from Ortsbo on September 15, 2015 and the subsequent cancellation of the Services Agreement. We anticipate that costs in fiscal 2017 will be relatively consistent period over period as we continue to work to develop a customer base and meet the needs of investors to finance our operation. Upon further significant increases in revenue, management will continue to hire qualified personnel, but the growth of this cost, we believe, will be far less than the impact to Net Loss.

 

Professional fees

 

Professional fees decreased by $245,566 or 61% for the nine months ended February 28, 2017 over the nine months ended February 29, 2016 and includes audit and audit related services pertaining to the year-end audits, and legal fees related to both ongoing operational compliance for the business and for financing closings. Although audit related fees have generally stayed consistent, the comparative period had higher legal fees as a result of our various financings that closed during fiscal 2016.

 

Consulting fees

 

Consulting fees went down by $110,918 or 38% and are mainly due to a significant reduction in spending on consultants. In the comparative period, the Company had more consultants engaged at various times during the prior period whereas in the current nine month period, the Company has had very few consultants engaged. This is expected to be consistent in the near term due to the Company’s overall realignment of spending.

 

Amortization of Intangible Assets

 

Amortization of $797,630 relates entirely to Technology and Intellectual Property purchased during fiscal 2016 which we are amortizing over 5 years on a straight-line basis as well as a patent that was granted in late fiscal 2016. The difference of $313,740 or 65% increase over the comparative period is due to the purchase taking place beginning of the second quarter in the prior fiscal year. On September 15, 2015, we finalized our purchase of Intellectual property assets of Ortsbo pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015.

 

Stock based compensation

 

Stock based compensation increased by $667,049 or 139%. This increase is due mainly to the issuance of options to management and the Board of Directors, and warrants to the new advisory board in late fiscal 2016. Additional warrants were also issued to the Board of Directors and a new advisory board member in early fiscal 2017. Overall values ascribed will be different for each period based on the underlying assumptions used at the time of each grant. The stock options expense is determined using the acceptable binomial tree valuation method, which is an acceptable method under US GAAP.

 

Total other income and expenses

 

Other expenses totaled $1,061,117 and $976,700, for the nine months ended February 28, 2017 and February 29, 2016, respectively. The change of $84,417 is due to interest expense, financing expense on issuance of convertible notes and common stock, change in fair value of convertible debentures and notes, prepayment fees on variable notes, miscellaneous (income)/expense, gain on debt settlement, and impairment of note receivable. During the nine months ended February 28, 2017, total other expense consisted of interest expense of $794,693, a loss resulting from the change in fair value of the convertible debentures and notes of $405,137, other miscellaneous expense of $12,087, gain on debt settlement of $(1,119,089), and impairment of note receivable of $968,289. During the nine months ended February 29, 2016, total other expense consisted of interest expense of $616,609, financing expenses on the issuance of convertible promissory notes and common stock totaling $632,250, a gain resulting from the change in the fair value of convertible debentures and notes of $(550,456), prepayment fees on variable notes of $306,140, and miscellaneous other income of $(27,843).

 

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Interest Expense

 

Interest expense increased by $178,084 or 29% for the nine months ended February 28, 2017 over the nine months ended February 29, 2016. The significant increase is mainly a result of the additional financings closed in fiscal 2016 which were offset by lower interest expense on previous convertible debentures that converted late fiscal 2016 and early fiscal 2017. We closed multiple secured debenture financings in fiscal 2016 totaling approximately $6.7 million, most of which was new debt for us at the time. Additionally, we incurred a higher penalty interest on convertible debentures from fiscal 2014 that reached maturity in late fiscal 2016 and early fiscal 2017.

 

Financing expense on issuance of convertible promissory notes and common stock

 

Financing expense decreased by $632,250 or 100% as common stock purchase warrants issued in the comparative period accounted for most of the expense. In addition we did not fund our company through variable rate promissory notes in fiscal 2017 whereas there was still a minor financing completed on a variable rate convertible promissory note in the nine month period ended February 29, 2016. The expense is a function of the underlying assumptions at the time of the grant and is mainly driven by the strike price of the instrument and the stock price at the time of the grant. As this is a non-cash expense, based on financings and model outputs it is hard to estimate variability for this account.

 

During the nine months ended February 28, 2017, we raised $1,326,348 through private placement financing of common stock and warrants and other loans. During the nine months ended February 29, 2016, we raised $2,268,846, in net cash from short term notes payable, line of credit, convertible notes, secured notes, and debentures through normal channels.

 

Change in fair value of convertible promissory notes and convertible secured debentures

 

Change in fair value of convertible debentures and notes had an incremental change in the recognized gain/loss by $955,593 between the nine months ended February 28, 2017 and the nine months ended February 29, 2016. There was a $405,137 expense for the nine months ended February 28, 2017 since the existing unsecured debt instruments continued to have fair value adjustments until they reached maturity, in addition to the secured debentures that were issued during fiscal 2016. There was a $550,456 gain for the nine months ended February 29, 2016 due to the revaluations on the variable conversion priced notes and the underlying assumptions used to value them using the binomial tree valuation method which includes elapsed time, and market price fluctuations.

 

For the nine months ended February 28, 2017, the loss from fair value adjustment largely relates to accretion fair value changes on various convertible debentures and notes and repricing of various warrants. In the comparative period in 2016, there was a significant decline in the market price compared to those prices that were in effect at the time of the original issuance of these convertible instruments. The changes in market value of our common stock coupled with the other parameters used in the binomial lattice model for all instruments marked to market, resulted in an expense recorded for fair value changes to the market price of variable convertible notes.

 

Payment fees on variable conversion priced notes

 

Payment fees on variable conversion priced promissory notes is significantly lower by $306,140 or 100% in nine months ended February 28, 2017 over nine months ended February 29, 2016 as we repaid the variable conversion priced promissory notes in the prior fiscal year. We have not had any further variable conversion priced promissory notes outstanding during fiscal 2017.

 

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Miscellaneous expense/(income)

 

Miscellaneous expense/(income) was an expense of $12,087 for the nine months ended February 28, 2017 compared to a gain of $(27,843) for the nine months ended February 29, 2016 resulting in incremental change in the recognized gain/loss by $39,930. The expense/(income) is largely a function of foreign exchange expense/(income) and write-off of payables that the Company is no longer required to pay either due to a settlement or management has concluded the obligations are barred by the statute of limitations. A small portion of the foreign exchange is a cash expense in bank spread for currency variance conversion between the US dollar and the Canadian dollar. The remaining foreign exchange expense/ (income) was incurred on changes in the foreign exchange rate and the foreign denominated liabilities. 

 

Gain on debt settlement

 

In the nine month period ending February 28, 2017, the gain on debt settlement of $1,119,089 was related entirely to settlement of various debt obligations of Yappn in conjunction with a settlement arrangement with DWF. On February 28, 2017, management reached a go forward resolution with DWF stakeholders. Yappn agreed to reduce its stake in the DWF assets to $800,000 which will be in the form of a new investment in DWF with the specific terms to be determined. This reduced position in DWF’s assets is in exchange for DWF stakeholders forgiving all unsecured debentures, secured debenture, term debt and related interest that were obligations of Yappn. More specifically, the Company settled $305,000 of unsecured convertible debentures and accrued interest of $91,408 with Series A and B common stock warrants repriced to $0.25 and an extension of one year to maturity of both warrants, $250,000 of unsecured convertible debentures and accrued interest of $43,613 with Series D warrants repriced to $0.25 and an extension of one year to maturity of the warrants, $65,228 of unsecured term loans and related interest of $16,512, and $200,000 of secured convertible debentures and accrued interest of $20,000 issued to a consultant. In addition to the above, the Company has negotiated its release from various past consulting obligations.

 

Impairment of note receivable

 

We have not received any payments from DWF during the second quarter, and the secured note final payment date was contracted to be fully paid by November 30, 2016. While management continued to work with DWF on a resolution as at November 30, 2016, the current conditions resulted in a much greater uncertainty around collection of the note receivable as at November 30, 2016. Management recorded a full impairment of $968,289 which was the remaining recorded amount previously recorded in its financial statements. Impairment expense of $968,289 was recorded during the nine month period ended February 28, 2017, specifically on November 30, 2016.

 

Net loss and comprehensive loss

 

During the nine months ended February 28, 2017 and February 29, 2016, we had a net loss and comprehensive loss of $4,821,235 and $3,668,594 respectively.

 

Liquidity and Capital Resources

 

As of February 28, 2017, we had a cash balance of $138,951, which is a decrease of $309,624 from the ending cash balance of $448,575 as of May 31, 2016. We do not have sufficient funds to fund our operations over the next twelve months. There can be no assurance that additional capital will be available to us. Since we have no other financial arrangements currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable going concern.

 

To fund our operations, we raised $1,588,576 through private placement financing of common stock and common stock purchase warrants as well as proceeds from a long term loan expected to be subscribed to a convertible secured debenture in the nine months ended February 28, 2017. During the nine months ended February 29, 2016, we issued secured debentures, convertible debt instruments, and received short term loans for net cash receipts of $2,268,846. 

 

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We have used this financing for funding operations and replacing short term high cost debt instruments with lower cost longer term financial instruments where the economics made sense.

 

We estimate we will need additional capital to cover our ongoing expenses and to successfully market our product offerings. This is only an estimate and may change as we receive feedback from customers and have a better understanding of the demand for our application and the ability to generate revenues from our new products. Both of these factors may change and we may not be able to raise the necessary capital and if we are able to, that it may not be at favorable rates.

 

On July 15, 2015, we completed a secured debt financing of $4.5 Million of 12% Secured Debentures. The Secured Debentures had an original maturity date of December 31, 2015. Subsequent to the end of the second quarter of fiscal 2016, the holders of the Secured Debentures (the “Holders”) agreed to extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020, and were provided with the right to amend the Secured Debenture such that a Holder shall have the right, at any time after the earlier of (i) six (6) months from the date of first issuance of any subsequent Debentures; and (ii) June 30, 2016, to require us to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of the Secured Debentures consent to a put of their Secured Debentures to our company.

 

We received $2.5 million of this financing in the form of cash and cash commitments, including conversion of the short term loans obtained on May 11, 2015 and June 19, 2015. $2,000,000 of the $4.5 million financing is conversion of a portion of our existing debt that remained in the secured debenture. $925,000 was repaid out of the secured debenture, in the form of cash in the amount of $465,000 with the remainder in the form of the release of secured deposit that was applied against accounts receivable. On September 15, 2015, we closed the acquisition of intellectual property from Ortsbo and as part of this closing, assumed debt and non-controlling equity interests from Ortsbo in the amount of $975,388 that was immediately subscribed to a second tranche of secured debentures. The secured debentures balance as at February 28, 2017, was $4,550,388.

 

On December 30, 2015, we completed a secured debenture and common stock purchase warrant financing for $2,040,000 through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments and having an exercise price of $0.01 per share. The units were sold at $1.00 per unit. This closing includes conversion of $1,201,000 in short term loans advanced during the quarter prior to the closing of this secured debenture. On May 1, 2015 we closed a final tranche of this financing for $370,468 which includes $170,468 in cash and $200,000 in settlement of a consultant obligation. The $200,000 debenture did not include the attached warrants as they were waived by the consultant.

 

During the nine months ended February 28, 2017, we raised $1,588,576 through various financial instruments, net of repayments. Subsequent to February 28, 2017, we raised $250,000 in cash proceeds. During the nine months ended February 29, 2016, we raised $90,750 via various convertible promissory notes and debentures, $2,096,653 from secured debentures, $2,040,000 from secured convertible debentures, and $168,823 from short term loans. We also repaid $883,564 of various convertible promissory notes and debentures, $1,092,025 of line of credit, and $151,791 of short term loans.

 

Going Concern Consideration

 

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We experienced negative cash flows from operations since inception and have incurred a deficit of $26,485,660 through February 28, 2017.

 

As of February 28, 2017, we had a working capital deficit of $977,033. During the nine months ended February 28, 2017, net cash used in operating activities was $1,871,893. Management expects to have similar cash needs for the next twelve months. At the present time, we do not have sufficient funds to fund operations over the next twelve months.

 

Implementation of our business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. We have realized limited revenues to cover our operating costs. As such, we have incurred an operating loss since inception. This and other factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required and ultimately to attain profitability. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management plans to meet its operating cash flow requirements from financing activities until the future operating activities become sufficient to support the business to enable us to continue as a going concern. Management continues to work on generating operating cash flows from the commercialization of its business. Until those cash flows are sufficient, we will pursue other financing when deemed necessary.

 

Management is pursuing a number of different financing opportunities in order to execute our business plan. These include, short term debt arrangements, convertible debt arrangements, common share equity financings, either through a private placement or through the public markets. During the nine months ended February 28, 2017, we raised $1,588,576 through various financial instruments, net of repayments. Subsequent to February 28, 2017, we raised $250,000 in cash proceeds.

 

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There can be no assurance that the raising of future equity or debt will be successful or that our anticipated financing will be available in the future, at terms satisfactory to us. Failure to achieve the equity and financing at satisfactory terms and amounts could have a materially adverse effect on our ability to continue as a going concern. If we cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Critical Accounting Policies

 

None.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports it files or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports it files or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Because of inherent limitations, disclosure controls and procedures, as well as internal control over financial reporting, may not prevent or detect all inaccurate statements or omissions.

 

Our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of May 31, 2016 were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

(b) Changes In Internal Control Over Financial Reporting

 

During the nine months ended February 28, 2017, there were no changes in our internal controls over financial reporting that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.

 

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PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of February 28, 2017, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our unaudited consolidated financial statements.

 

ITEM 1A. RISK FACTORS

 

Not required under Regulation S-K for “smaller reporting companies”.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

There were no defaults upon senior securities during the six month period ended November 30, 2016.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

There is no information with respect to which information is not otherwise called for by this form.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). Our Commission filings are available to the public over the Internet at the Commission’s website at http://www.sec.gov. The public may also read and copy any document we file with the Commission at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. We maintain a website at http://www. yappn.com (which website is expressly not incorporated by reference into this filing). Information contained on our website is not part of this report on Form 10-Q.

 

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ITEM 6. EXHIBITS

 

Index to Exhibits

 

Exhibit No.   Description
     

2.1 

Asset Purchase Agreement by and among Yappn Corp., Yappn Acquisition Sub., Inc. and Intertainment Media, Inc., dated March 28, 2013 (2)
2.2   Asset Purchase Agreement between the Company, Ortsbo Inc., Intertainment Media, Inc., and Winterberry Investments Inc. dated July 6, 2015 (17)
3.1   Amended and Restated Certificate of Incorporation filed on March 14, 2013. (1)
3.2   Amended and Restated Bylaws. (1)
3.3   Amended and Restated Certificate of Designation and Preferences of Series A Convertible Preferred Stock, filed with the Secretary of State of Delaware on May 31, 2013 (3)
3.4   Amended Certificate of Incorporation filed on December 31, 2014 (18)
3.5   Amended Certificate of Incorporation filed on September 9, 2015 (18)
4.1   Convertible Promissory Note (4)
4.2   Convertible Promissory Note Issued in Favor of JMJ Financial (6)
4.3   8% Convertible Note (7)
4.4   Form of 8% Convertible Note (8)
4.5   Form of 6% Convertible Promissory Note (9) (10) (12)
4.6   Form of Promissory Note (13)
4.7   Common Stock Purchase Warrant (13)
10.1   Lock-Up Agreement by and between Yappn Corp. and Intertainment Media, Inc. (2)
10.2   Form of Warrant (2)
10.3   Form of Subscription Agreement (2)
10.4   Form of Registration Rights Agreement (2)
10.5   Form of Note Purchase Agreement (2)
10.6   Form of Note (2)
10.7   Form of First Amendment to Note Purchase Agreement (2)
10.8   Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (2)
10.9   Stock Purchase Agreement (2)
10.10   2013 Equity Incentive Plan (2)
10.11   Bill of Sale dated March 28, 2013 (2)
10.12   Services Agreement by and between Ortsbo, Inc., Ortsbo USA, Inc. and Intertainment Media, Inc. dated March 21, 2013 (2)
10.13   Form of Indemnification Agreement (2)
10.14   Securities Purchase Agreement (4)
10.15   Amendment to Services Agreement (5)
10.16   Amendment Agreement to Convertible Promissory Note Issued in Favor of JMJ Financial (6)
10.17   Securities Purchase Agreement (7)
10.18   Securities Purchase Agreement between Yappn Corp. and GEL Properties LLC (8)
10.19   Securities Purchase Agreement between Yappn Corp. and LG Capital Funding LLC (8)
10.20   Form of Securities Purchase Agreement (9) (10) (12)
10.21   Form of Registration Rights Agreement (9) (10) (12)
10.22   Form of Series A Warrant (9) (10) (12)
10.23   Form of Series B Warrant (9) (10) (12)
10.24   Amendment Agreement to Convertible Promissory Note issued in favor of JMJ Financial (11)
10.25   Loan Agreement (13)
10.26   General Security Agreement between Yappn Corp. and Toronto Tree Top Holdings Ltd. (13)
10.27   General Security Agreement (Yappn Canada Inc.) (13)
10.28   General Security Agreement (Intertainment Media Inc.) (13)
10.29   Guaranty and Indemnity (Yappn Canada Inc.) (13)
10.30   Guaranty and Indemnity (Intertainment Media Inc.) (13)
10.31   Assignment of Monies and Debt Due Arrangement (13)
10.32   Employment Agreement between Yappn Corp. and Mr. David Lucatch dated June 1, 2014. (14)

 

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Exhibit No.   Description
     
10.33   Form of Series C Warrant (15)
10.34   Form of Series D Warrant (15)
10.35   Amendment to the Employment Agreement between Yappn Corp. and Mr. David Lucatch dated September 2, 2014. (16) 
10.36   Form of Master Services Agreement between Yappn Corp. and Digital Widget Factory, dated November 6, 2014. (16)
10.37   Form of 12% Secured Debentures(17)
10.38   Form of Security Agreement, dated July 15, 2015 (17).
10.39   Form of 12% Secured Debenture (19)
10.40   Form of Common Stock Purchase Warrant (19)
14.1   Code of Ethics and Conduct (14)
31.1   Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer.*
31.2   Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer.*
32.1   Section 1350 Certifications of Principal Executive Officer *
32.2   Section 1350 Certifications of Principal Financial Officer *
101.INS   XBRL Instance Document *
101.SCH   XBRL Taxonomy Extension Schema Document *
101.CAL   XBRL Taxonomy Extension Calculation Linkbase *
101.DEF   XBRL Taxonomy Extension Definition Linkbase *
101.LAB   XBRL Taxonomy Extension Labels Linkbase *
101.PRE   XBRL Taxonomy Extension Presentation Linkbase *

 

(1) Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013. 

 

(2) Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 3, 2013. 

 

(3) Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 3, 2013. 

 

(4) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 15, 2013. 

 

(5) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 29, 2013. 

 

(6) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2013. 

 

(7) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 18, 2013.

 

(8) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 20, 2013. 

 

(9) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 30, 2014. 

 

(10) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 27, 2014. 

 

(11) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on March 4, 2014. 

 

(12) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 1, 2014. 

 

(13) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 11, 2014. 

 

(14) Incorporated by reference to the Company’s Annual Report on Form 10-K, filed with the SEC on August 29, 2014. 

 

(15) Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on October 24, 2014. 

 

(16) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on January 13, 2015. 

 

(17) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 6, 2015. 

 

(18) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on October 15, 2015. 

 

(19) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 6, 2016.

 

* Filed herewith.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 13th day of April 2017.

 

  YAPPN CORP.
     
  By: /s/ Ed Karthaus
    Ed Karthaus
    Chief Executive Officer
     
  By: /s/ Craig McCannell
    Craig McCannell
    Chief Financial Officer
    (Principal Financial Officer)

 

 

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